Are Rents Still on the Rise or Not? The Confusion Unraveled!

Depending on which newspaper you read or which website you follow you will have probably read that rental yields are either going up or going down. RICS, the ARLA and paragon mortgages have all put out reports in the last few months, that at some points, on the surface seem to contradict what each other has said in someway; however, when you dig deeper and get behind the facts, there is not always as much conflict as there first appears.

What is the Real Truth Behind Rental Yield at the Moment?

The truth is that each point of view is correct, in its own way. Just a few short months ago newspapers were reporting rises in rents and warning that alongside the credit crunch this could have disastrous consequences for tenants who are currently short of cash. Yet a few months on and you can now also find reports of stagnate or falling rental values.

Many landlords are struggling financially at the moment. Particularly hard hit are fairly new entrants to the buy to let market who hoped to make a quick fortune. Numerous novice buy to let investors who have flooded the property market in the last couple of years, are finding themselves in a negative equity.

However, what most statistics don’t make obvious is the regional differences and differences in the types of properties being reported on.

A more in depth study of reports from findaproperty.com reveals that rent is indeed still on the rise in certain location, while rent is decreasing in others. It also reveals that the type of property you are renting out has something to do with whether you are experiencing good times or bad times in the current rental market.

Previously many investors felt confident that they could do general research and make general assumptions such as the North West is a good place for rental yield or parts of the south good for capital growth.

We are currently in a situation that these types of blanket assumptions are proving to be less accurate than they used to be. A study of paragon mortgages July buy to let index report reveals some interesting facts.

  • Rental Yields remained stable at 6.4% in June, after hitting a two year high in May
  • Regions achieving the highest yields in June were Wales (7.9%), the North (7.4%) and the North West (7.3%)
  • Rental incomes remained steady in June, but are up 9.3% year-on-year.
  • Regions achieving the highest rental incomes in June were London (£19,788), the South West (£15,954) and the South East (£12,128)

Closer scrutiny reveals that according to Paragon places like East Midlands and Greater London there is a negative %change/yr where as the North and Wales are flourishing in comparison.

The Current State of Play

  1. Many landlords and would be owner occupiers alike are veering away from purchasing property at the moment since they are worried about the instability in the current market.
  2. Home owners are having difficulty selling their properties at the moment, so many are taking the decision to still move and rent out their current property.
  3. Property developers and flippers are having difficulty getting good prices for their properties so they to are having to rent them out.
  4. Many owner occupiers who have to sell at the moment are choosing to rent another property rather than plough their money back into another property that might soon be in negative equity.

Some of these scenarios are causing the market to be flooded with more properties to let that there would have been previously; because of this, in general, tenants have more choice and this is why in some areas rental prices are stalling or even going backwards as tenants relish their new found power to negotiate a cheaper rental price.

In this scenario bulk build flats are inevitably the first and the hardest hit. Highly sort after but low supply properties are still bucking the trend and seem destined to continue to do so.

How Can Landlords Protect Themselves

The first thing that landlords have to do is to evaluate their current position. How is their portfolio geared? If they are struggling to get tenants could they afford to reduce the rent in the short term?

Buy to let landlords have to be realistic in the current market. Even if they know the area they are investing in well, they need to look at it again and analyse any changes that have occurred over the last few months. Is the rent they are asking for really achievable?

Are you prepared to take a loss in cash flow for the next few months or even couple of years to hold unto your property portfolio?

You have to give yourself as much opportunity as you can to be successful in the current property market conditions. Any edge you can give your property will be crucial. The smallest detail can be the difference between success and failure. The tiniest piece of the puzzle could the difference between someone renting one of your properties or renting someone else’s.

Re-evaluating your market and paying attention to the smallest details could help you thrive while others are struggling.

Take all the reports you get about rental yields with a pinch of salt at the moment, no matter who they come from. Take note of what they say but compare it to what else is being said. The most important thing is that you understand the state of play with the rental yields in the locations that you personally invest in, as well as having a general idea of what is happening in the rest of the rental property market.

**Nothing on this website should be confused with financial or legal advice. If you need this, or any other type of advice, please seek the help of a competent professional. In addition, because real estate laws change all the time and differ from state to state, and even city to city in the same state, everything in these pages should be considered general marketing advice and ideas. Please see link to full Disclaimer at the bottom of this page.

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