Across the UK demand for rental property continues to grow as more newly formed households look to rent, more first time buyers choose to delay or are prevented from making a purchase and economic constraints push more people from home ownership into rented accommodation.
Mortgage finance remains scarce and first time buyer deposits continue to be unaffordable.
Combined with limited levels of new supply that reflect recent low levels of debt backed investment in the residential sector, this means rents are rising even in the face of wider economic uncertainty.
According to Findaproperty.com asking rents rose by 4.6% in the year to the end of September, while the LSL buy-to-let index suggests rental movements of 3.5% over the same period.
This scenario is unlikely to change in the near future, although the October 2011 RICS residential lettings survey indicates that the rate of rental growth is slowing.
The private rented sector has already become more the tenure of ‘reality’ rather than the tenure of ‘choice’. In a recent Ipsos MORI poll, a third of all respondents in the private rented sector, aspire to own their home but only 15% actually expect to fulfil this ambition.
In London, the supply-demand imbalance between renters and available property to rent is greatest and rental growth is strongest. We expect rents to rise by 20% across the UK over the next five years. In comparison, mainstream London rental values are forecast to increase by 27% over the same period.
As average UK rents increase at a rate faster than average capital values, income yields have increased. Already the RICS have reported seven consecutive quarter of yield rises and we expect this to continue.
We expect to see the headline gross yield on residential stock increase from 5.0% to 5.7% over the next five years.
This should increase the attractiveness of the sector to investors, particularly those looking for strong income-producing assets with growth potential. In turn, this should be the catalyst for increased institutional and other residential investment.
This investment proposition is likely to be underpinned by the ongoing shift in demand towards private renting. According to the Survey of English Housing, the number of households in private rented accommodation rose by just under 290,000 between 2008/09 and 2009/10.
We expect this to continue such that private renting will rise from 15.6% of all households in England in 2009/10 to 20% of households by 2015/16. This suggests the creation of one million more private rented households.
.jpg)
.jpg)