Property investors can expect steady returns as the sector is boosted by rising rent and house price stability.
The Royal Institution of Chartered Surveyors has released its data for the second quarter of 2012 and the news is good for property owners. UK rents have risen by over 4.3% in the last 12 months and are set to increase by a further 3.9% in the coming year.
Landlords can look forward to solid returns for the next 13 years. According the RICS data, it’s safe to expect a return of around 3% per year, after running costs and before tax. In the period of April-June, there was little change to the amount of properties appearing on the market, but demand from tenants has risen. Indeed, it has risen faster than the change in supply for the first time since early 2009.
Variations across the regions contrast dramatically. The North-West boasts the largest increase in rent, displaying a 6.9% rise, but rents in Wales have hardly changed for over a year. Across the UK, the average rent increase has been attributed to the difficulty in trying to secure a mortgage and the large deposits that lenders demand. Combined with the on-going decline in job security, tenants are unable to join the property ladder and are forced to continue renting. Uncertainty in the housing market is also a potential factor.
According to The Council for Mortgage lenders, the national growth in rent had led to an increase of just under 20% in the last 12 months. This is still only a third of the 2007 peak, but the signs are encouraging.
Pricewaterhouse Coopers have finished their own study and they suggest that buy-to-rent investors can rely on making capital returns, on top of the rent. Between 2012 and 2025, house prices are expected to increase by 2% a year, caused by a lack of planned new builds. With the addition of rent, buy-to-rent landlords can expect that solid figure of 3% return, similar to the return you could expect from a half and half mixture of index-linked gilts and equities.
Pricewaterhouse Cooper have warned, however, that any portfolio decisions should be as thoroughly researched by the individual as they always have been. Property may be an excellent way to diversify the risk in your investments, but it is a notoriously unpredictable sector. You only have to look at recent events to see the truth in this statement.
Devonie Wright works for landlordsinsurance.org.uk, who are experts in finding the right insurance for property owners.