Tenant Demand Outstrips Rental Supply In UK Property

The biggest story at the Landlord and Letting Show 2010 (London Olympia) was the fact tenant demand in the UK is massively outstripping rental supply. This is, of course, fantastic news for investors wishing to start or expand Buy To Let portfolios. Headlines such as ‘Record 50,000 tenants enter market', ‘Rental website records a 938% growth in activity' and ‘London tenant frenzy reported' are predominant in the property media.

Record 50,000 tenants in Q2 2010

Record demand saw 50,480 new tenants register for rental accommodation in the second quarter of 2010. This is a 16% increase since the start of the year. The survey was conducted by letting agent and property group, Countrywide. The company surveyed its UK network of 211 branches and database of over 50,000 landlords and tenants (per year) to track market trends.

June saw the sharpest increase, with over 18,000 new tenants registering. This is the highest number in a single month before records began and a 22% increase on the previous month. The number of new properties being offered, however, fell by 6%. According to Countrywide, Q2 2010 saw an average of 5.5 tenants vying for each property, compared to 4.9 in the first three months of the year. Some particularly high demand areas have risen to 23.1 tenants per property. The findings also report a 4% rise in rent prices, compared to Q1 2010.

John Hards, co-managing director for Countywide Residential Lettings, explains: "The number of tenants entering the market is at unprecedented levels - and we have yet to enter the peak season. Student demand for private rental accommodation will increase further with university applications at record levels. The Buy To Let sector remains a good source of investment."

Student rents up 25% since 2004

Indeed, the latest research from student letting website, Accommodation For Students (AFS), reveals the demand has also led to an increase in student rents in 2010. According to AFS, the average student weekly rent now stands at £65.30 - a 4.3% increase from £62.61 in 2009. The previous two years' increases were just 1.6% and 1.7% respectively and student rents are currently 25% higher than in 2004.

The increase in student rents seems almost insignificant, however, when compared to the premium end of the Private Rented Sector (PRS).

A bull market? Bidding wars and 40% rent increases

Lucy Morton, head of lettings at central London estate agents W.A. Ellis, explains: "It's like the bull market of 2008. Bidding wars have become the norm again in prime central London. Properties newly launched on to the market are being viewed and secured within hours of coming on."

According to Morton, tenants are paying deposits by credit card, ahead of signing the tenancy agreement, in order to secure properties over the competition. Tenants are also paying significantly higher rents in order to stay on in their accommodation. One landlord is reported as being persuaded to delay the intended sale of his property with a 40% rent increase from the existing tenant.

High-end agent Chesterton Humberts also reports the more expensive areas as almost having their own economic climate. London's SW1 area, for example, has remained stable and the most notable change is the speed with which properties are now being let.

Further figures from the Southern Landlords Association report rent rises of between £50 and £300 per month, from existing tenants, in desirable areas.

Independently-owned rental website, Letting A Property, also records a surge in activity, citing a 938% visitor increase since the start of 2010. Managing director, Jonathan Daines, comments: "More tenants are finding it near on impossible to move out of private rented accommodation and onto the property ladder."

He continues: "Despite interest rates being at an all-time low, mortgages are still hard to come by and, considering that the majority of tenants do not have deposits of 20-25%, they simply cannot afford to buy. Plus, property stock from high street letting agents has decreased rapidly over the last few months, with a lack of new landlords coming to the market."

Residential mortgage lending fourth lowest in 17 years

While rental demand rises, residential mortgage lending continues to decrease. Official figures from the Bank of England reveal a massive decline in mortgage approvals, with just 48,700 in July 2010. The monthly average for the past decade has been 93,000. Plus net lending, which strips out redemptions and repayments, totalled just £86 million during the month - a steep fall from £518 million in June. These mortgage lending figures are the fourth lowest since the Bank of England's records began in 1993.

Simon Rubinsohn, chief economist at the Royal Institute of Chartered Surveyors (RICS), notes: "A lack of mortgage finance remains a key problem for many borrowers looking to take their first step on the property ladder, with high deposits required still proving to be an obstacle for many."

He continues: "Uncertainty over the outlook for the market may also be discouraging first-time buyers. This is reflected in developments in the rental market; the latest RICS Residential Lettings Survey showed tenant demand continuing to grow strongly and rents rising due to a lack of supply."

Bid to let for auction savvy landlords

The record level of demand and lack of residential mortgage availability has led to an influx of auction bidders snapping up Buy To Let property. Specialist lender, Auction Finance Ltd (AF), reports residential lots raising £212,568,849 at auction in May 2010 alone. This is a 29.3% increase on the figure from May 2009.

Chris Baguley, director at Auction Finance, says: "We're not yet at the peak season for rentals and demand is at an all-time high. Now is a good time for Buy To Let investors to buy good properties, as the yields achievable remain strong and, with demand still growing, rent is likely to rise too. As the housing shortage continues, there are real opportunities for investors to take advantage of market conditions."

Double dip = decision in principle

Opinion is unanimous and the facts speak for themselves. The double dip for the first-time residential buyer translates as a decision in principle for the shrewd investor. With residential mortgages at a shocking low, tenant demand at an all-time high and rents increasing accordingly, there has never been a better time for Buy To Let landlords to profit.

Are you ready to take advantage of the fantastic Buy To Let opportunities in the current UK property market? Do you want further information, or are you ready to invest right away? We can help you on both counts. You can pick up the phone and call Russell Bonner or David Ball, Axis UK Portfolio Managers, on 01273 447 300 for a no obligation introductory discussion; or check out our website.

We recommend our web page, Understanding UK Investment Property; plus you can view details of currently available UK investment properties here.

Live with Abundance

Rod Thomas FCA  

Posted in UK Property News

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