UK rental market likely to be more realistic in 2012, experts believe

Landlords should realise the market has stabilised and adjust rents accordingly, it is claimed

Price hikes in London’s residential rental property market appear to have peaked and in some locations, are entering a period of adjustment with rents slightly reduced, it is claimed.

According to Caroline Kavanagh, managing director of Townends Lettings and Management, in order to keep hold of the best tenants, landlords must realise that the market has stabilised and re-assess their rents accordingly.

The buy to let market has grown at a substantial rate over the last two years with rents hitting an all time high, especially in many London boroughs and commutable areas such as Staines and Sunbury, but the rate at which rents have risen is simply not sustainable for tenants.

‘For a long time, landlords have been in the driving seat but the start of the new year seems to have brought about a change in tenant attitude, one that is no longer willing to just accept price rises, but that is prepared to look for an alternative in order to take back an element of control,’ said Kavanagh.

Many tenants are spending two thirds of their income on rent making saving of any kind nearly impossible. Applicant numbers are equal or marginally above the same period last year demonstrating that demand remains high, so a period of price adjustment does not suggest that the buy to let bubble has burst, but simply reflects a more stable market.

‘What landlords must realise is their income is still well above what was being achieved two years ago and savvy landlords will take this on board and adjust their expectations and prices accordingly to maintain their competitive edge,’ Kavanagh explained.

‘Similarly, landlords should also review the facilities they are providing to ensure it warrants the asking price, thus attracting the best calibre of tenant and avoiding voids. Optimising rents at varying points in the market by not forgetting about what makes a property so attractive is essential,’ she added.

A realistic approach to rents is vital in the year ahead in the UK market as many regional locations have not recovered to the levels achieved in 2008, according to Belvoir managing director Dorian Gonsalves.

The Belvoir Lettings Index, which has been running since March2008, shows there is considerable variation on rent levels according to locations.

‘During 2011 there were frequent reports in the national press about the stratospheric rise of UK rents. However, although the Belvoir Index reveals rental increases in 2011 versus 2010, many regions have still not recovered to the rents achieved in 2008,’ said Gonsalves.

The index shows that just five areas across the UK have overtaken the rental heights of 2008. These regions are London where rents are up 5%, the North East up 6%, Yorkshire up 2% and the South West and West Midlands, both up 1%.

Other regions were up in 2011 compared to 2010, but were still down compared to 2008 heights. The North West is down 3% compared with 2008, the East Midlands down 6% and East Anglia down 5%.

‘We are predicting that this regional rental fluctuation is likely to continue throughout the year, although some areas such as the South East are likely to see a higher increase as rental prices force people out of London into the Home Counties. With regard to other areas I think rents will be relatively stable and any increases are likely to be very modest,’ explained Gonsalves.

‘I believe that increased rents and stable or decreasing house prices will result in increased rental yields in 2012. However, this will clearly be very dependent on the outcome of the eurozone crisis and its impact on credit and borrowing. The UK rental market is strong, but landlords should be realistic about the rents that can achieved in their area and talk to specialists who understand the local market, as buying in the wrong area can be very costly,’ he added.

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