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Rental market set to become more tenant-friendly?

From Property Talk Live on November 18, 2013

Landlord Assist says demand for the Government’s flagship Help to Buy Scheme coupled with an expected rise in interest rates could be the catalyst for the buy-to-let sector becoming more tenant-friendly.

For the past few years the private rented sector has sustained a significant growth period caused by huge volumes of people opting to rent rather than buy because of difficulties in obtaining suitable finance for lenders.  

Subsequently, competition for the best properties has been fierce and has allowed landlords to charge record rents and enjoy substantial yields.   But looking ahead, the nationwide tenant eviction and rent recovery firm is warning landlords that market conditions could be about to change, and potentially force down rents for the most expensive properties.

According to Stephen Parry, Commercial Director at Landlord Assist, the Government’s Help-to-Buy scheme is making owner occupation more accessible and helping those wishing to move away from rented accommodation.   For tenants paying the highest rents, this will make purchasing a property a lot more achievable and more cost-effective than renting.

Mr Parry says: “Allowing people to purchase a property with just a five percent (5%) deposit will encourage a lot more movement in the property market and will appeal to tenants who are paying the highest rents. Reduced demand for the most expensive rental properties may force rents down, although we fully expect rents at the lower end of the market to still have the potential to rise as the owner occupied market will still remain out of reach for many tenants.

“Although the Help to Buy scheme will only affect a small percentage of transactions and its full impact won’t be felt for another two or three years, landlords in the UK tend to work on an average of a six percent (6%) return on their investment. At this level it is more lucrative than holding money on deposit and makes provision for some of the risk that a landlord will take with a property investment. A one percent (1%) fall in rents coupled with a two percent (2%) increase in borrowing costs could eradicate much of the benefit for a landlord in terms of their property being income producing.”

Graham Kinnear, Managing Director at Landlord Assist says: “The Help to Buy scheme is the first step that the Government has taken to stimulate movement in the property market. Whilst this initiative will no doubt support tenants to move into home ownership, its impact on landlords in the months and years ahead should not be underestimated.

“As the rental market becomes more tenant-friendly it is important that landlords adjust their strategies accordingly, investing in properties that are suitable for tenants who are less likely to take advantage of the Help to Buy scheme, such as students, tenants on benefits or low-income families, and set their rent prices at levels that will attract long-term tenants and provide greater stability.

“Whilst we are keen to see people fulfilling the dream of homeownership and support the Government in their plans we think there should be some further initiatives for individuals to invest in residential property. The rental sector is important to the economy and employee mobility and should therefore investment in property should be positively encouraged.”

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Source: Property Talk Live