UK Rents Slowing but Still Opportunities Abound

Just when life couldn't get any rosier for buy to let landlords in the UK, the picture has gone and shifted. According to the latest LSL buy to let index, rental growth in many areas has slowed...

Just when life couldn't get any rosier for buy to let landlords in the UK, the picture has gone and shifted. According to the latest LSL buy to let index, rental growth in many areas has slowed, and in some annual growth has fallen into negative territory – quite badly in a couple of  regions.

According to the data UK rents rose 0.4% on the month in May to £712, but growth slowed slightly on an annual basis. In 3 regions annual growth fell into negative territory, with rents down 1.5% in the East Midlands, down by 0.7% in Wales, and by 0.3% in the North East. In 2 of those regions rents also fell on the month, with rents in the East Midlands down a full 1% on April, and down by 0.8% in Wales. Rents also fell on the month in the West Midlands and the Humber region by 0.9% and 0.1% respectively.

The decline in rents has been confirmed by data from Savills, which recorded a staggering 5.1% drop in prime north London rents, as well as rents down 0.5% year on year in prime central London.

But of course, this is not a major problem for buy to let investors. Across the country rental demand is still at an all time high according to LSL statements, and confirmed by the continued strong growth in rents in most regions. Looking at LSL's regional breakdown, rents in London and the south west continued to show the strongest growth, with rents up 4% and 1.3% year on year respectively, but the East of England actually beat the south west with rents up 2% on the year, and rents in the West Midlands were also up 1.3% compared to last May.

On top of that yields continue to be impressive across the country, but more importantly stronger in the north than the south. According to the LSL data the North West region topped the UK in May at 6.6% up from 6.5% last year, closely followed by the Humber region at 6.6% up from 6.3% last year. Yields in both the East and West Midlands were at 5.9% in May, which is still considerably higher than London and the South West at 4.9% and 3.8% respectively.

The message with the data is that investors should pay more attention to researching tenant demand in their chosen areas and by no means avoid areas where rents may be falling, as this could mean missing opportunities.

"Rents may no longer be rocketing in all areas, but these regions can still provide good opportunities for sensible investment," LSL director David Newnes said in an interview with the Financial Times.

Newness went on to point out that while rents in the West Midlands may have fallen by 0.9 per cent in May; they were 4.6 per cent higher than three years ago, providing landlords with a healthy rental income, with yields in the region at 5.9%.

Steve Olejnik of buy to let mortgage specialist Mortgages for Business put why investors shouldn't use rent growth as a deciding factor on regions very well in the same FT article, he said:

"High rents can generate a faster tenant churn factor, which can prove very costly. Having to find new tenants regularly is expensive when you take into account void periods and upfront costs. It might be better to take a lower rent and keep hold of your tenants for longer."

- Tuesday 03 July 2012

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