ARLA Report Brings Exciting News For Investors

Exciting news for investors The Association of Residential Lettings Agents (ARLA) review and index for the second quarter of 2010 indicates an advantageous time for investors in the Buy To Let and Off Plan markets. This is due to a robust increase in demand for rental properties and an associated drop in supply and availability.

A changing market

The number of households in the private rented sector (PRS) has risen by one million over the past decade. This ongoing increase in demand is starting to put a strain on the supply.

The UK is experiencing socio-economic and demographic changes which signal a material increase in demand for rental property. There are growing numbers of single person households, economic migrants and students, i.e. groups who tend to rent as opposed to buy. Plus people are getting married and starting families later in life, delaying home ownership.

The UK population is forecast to grow to 71.6 million by 2033, with 6.3 million new households in England alone by 2031.

What this means for landlords

The ARLA report cites rental properties being on the market for an average of 3.6 weeks - compared to 4.2 weeks at the same point in 2009. ARLA members also reported substantially increased achievable rent levels over the last 6 months. This is the fourth quarter rise in succession, this time from 31% to 43%. The ratio of tenant demand to available (supply) properties has also been rising for four quarters in succession, this from 59% to an all-time high of 70%.

So, for landlords, we have:
a) A faster turnaround on market-to-rent
b) Higher rental yields
c) Increased demand in general, i.e. more tenants to choose from

Investor facts and figures

The average proportion of ARLA members whose portfolios are made up of investment property is virtually unchanged compared to three months ago at 54%. However, the average number of purely investment properties which are managed by ARLA members has fallen from 129 to 119 over the same period.

Just over a third (35%) of ARLA members believe investor landlords are being tempted back into the market because of the minimal interest rates on savings.

More than three quarters (76%) said they did not expect to sell any of their Buy To Let residential properties in the next 12 months. In fact, additional data from Moneyfacts reports the number of Buy To Let mortgages available has fallen from a high of over 3,500 in August 2007, to just over 300 in August 2010.

However, this figure of 300 is a definite improvement from 18 months previously when Buy To Let mortgages were at a low of just 15. Lenders are starting to offer higher percentage mortgages again, rising from 65% to 80% and even 85%.

This means now is an excellent time to start or expand a Buy To Let portfolio. As we recommend holding a Buy To Let property for at least 5 years (ideally 10), the slow sales factor is far from being a problem.

What about material supply?

Lower house building activity, exacerbated by the recession, has added to the demand. The National Housing and Planning Advice Unit (a Government advisory body) states the UK requires up to 290,500 new homes a year until 2031 to satisfy demand. However, just 118,000 were completed in 2009.

This brings us to Off Plan investment options. If there are fewer available properties on the market, why not look at investing in new builds?

Axis has spotted the opportunities in this sector, so will be starting to offer UK Off Plan properties again as from late 2010, early 2011. Timescales are 12 - 24 weeks to completion and Axis also offers full support and management throughout the buying process.

How to benefit

So, we have looked at how savvy investors can benefit from the current and evolving market. Whether you are interested in Buy To Let, Off Plan, or both, we will leave you with the following three ‘rules' for success:

1) Use a medium to long term strategy, producing a combination of rental yield and capital appreciation.

2) Make objective business decisions based on research of the needs and requirements of the local market, as opposed to on personal taste.

3) Be aware the rental market is moving fast with fluctuating supply and demand. This can influence achievable rental levels and occupancy rates.

All in all, the future of the private rented sector looks to hold a number of lucrative medium to long term benefits for clever investors.

Ready to learn more about UK property investment? Check out our web page Understanding UK Investment Property. View details of currently available UK investment properties.

Or, if you're ready to invest and want to know what we can do to help, call David Ball, Axis UK Portfolio Manager on 01273 447 300 for a no obligation introductory discussion.

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