Rent rises could decelerate for tenants in 2015

Rent rises could decelerate for tenants in 2015

Market conditions indicate fixed or low rental increases says Belvoir

The UK’s buy to let property sector is set for sustained growth in 2015 with tenants, feeling the most value from potential changes in the market.

Present economic conditions, shared with possible interest rate increases in 2015 and the uncertainty of Government policies following the General Election could result in either static or low rental increases next year.

Our past forecasts for continued and sustained growth in the buy to let sector have been borne out by ever-changing market forces and we imagine that the number of people opting to rent – either for lifestyle or economic reasons – will continue to increase demand for some time to come.

Dorian Gonsalves, Belvoir’s Commercial Director, adds: “In 2015 we believe that rent rises are expected to be limited by factors such as continued low disposable income amongst consumers, an expected interest rate hike towards the end of next year and a lower than predicted forecast for economic development.”

Latest research implies that rents will grow by an average 1.8 per cent over 2015 which is below the Bank of England’s target inflation rate of 2 per cent.

Belvoir’s independent Rental Index Report, which for the past seven years has recorded the ups and downs of the UK’s buy to let market, shows that most of the company’s 160 offices nationwide observed little or no growth in rent levels throughout the current year, although there have been falls and rises during this time.

“For the next 12 months, we consider it doubtful that adjustments to rents will vary much more than 2014 versus 2013,” says Dorian.

Analysis of regional rents in the Report exposed inconsistent variations across the country, with many rents not rising at the same levels as property prices - producing good news for hard pressed tenants who have not seen a widespread upturn in wages for some time. This has a huge influence on rents because if ‘real’ wage levels and spending power do not increase, rents will also struggle to be increased.

On a positive note, many landlord investors benefited from a considerable recovery in property prices in 2014. London and the South East saw rapid growth, while other areas around the UK achieved improved values of between 5 and 10 per cent.

During the course of 2014, home ownership continued to fall to its lowest level for 25 years.

Even though property prices saw a significant increase, greater mortgage restrictions bought about by the Bank of England designed to curb lending, kept many people off the property ladder – further increasing demand in the private rental sector.    

As for 2015, a number of unknown variables could all have an impact on the market.

Pension reforms - due to come into force in April 2015, strategies affecting the buy to let sector introduced as a result of the General Election and the effect of pending interest rates expected in Autumn of next year, will all form the future of the market, which currently shows no sign of slowing down.

Growing confidence combined with a recuperating property market and current low interest rates will, in the short term, continue to make buy to let property investment an appealing proposition – especially for longer term investors.  

According to industry predictions, the UK’s cumulative buy to let property portfolio could hit the £1 trillion mark next year. (It currently stands at £931 billion)

Three months ago (September 2014) the Council of Mortgage Lenders declared a sharp rise in buy to let investment - up 26 per cent over the previous 12 months.

A recent study claims that over half of residential property landlords in the UK are looking to buy more property in the new year.

All of these conclusions point towards continuing faith amongst professional landlords and institutional investors, but the much debated effect of a new breed of ‘buy to let pensioners’ entering the market will only become clear after the new pension rules come into effect. 

There is a wave of opinion that a substantial number of people will access their pension ‘pot’ to seek greater returns on their investments via buy to let – producing a new boom in the sector.

The market supply of buy to let may be enhanced by the impact of this new reform, but we would advise caution because property rental income should not be viewed as a replacement for pension income as the two are completely different. 

Pension income has a tendency to be low risk and index linked to rise with inflation whilst rental income can be more uncertain and usually does not grow in line with inflation.

Obtaining a suitable buy to let mortgage as a first-time landlord (especially at a later stage in life) could also prove problematic – even if you have access to a considerable deposit.

Any prospective investor needs to consider all the facts and seek out expert advice and guidance so that they can be aware of all the issues - amongst them taxation rules - in order to make an informed decision.

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