Lettings Supply Outstrips Demand in the UK Buy to Let Market – Positive News for Landlords

Fastest for 6 years

Demand for rental accommodation is outstripping supply at the fastest rate for 6 years according to a recent article contained in the Financial Times which is good news for landlords.

Letting agents say rental demand for buy-to-let properties has exceeded all expectations this summer and the trend is widely expected to continue for the next year. They report that the Association of Residential Letting Agents (ARLA) says that the level at which demand from tenants is outstripping supply from landlords is at its highest since they began conducting surveys about six years ago.

London centric spin

Do landlords recognise this in your local area? Well the chances are most landlords probably wont. What the FT neglects to mention is that these comments relate to Prime Central London property rentals.

This is one of the problems with a London centric media. Journalists based in the capital are surrounded by rocketing house prices and rents often fuelled by localised factors such as City bonuses and international immigration by the international super rich. The picture they paint is a property explosion which is not being replicated in other parts of the country. The reality is that the residential property market and the residential lettings market is very localised.

Following the initial wave of property price explosion which began in London in the mid 90’s and then spread outwards and northwards. This wave has now touched every part of the UK. Now, the UK housing & rental market have adjusted to this new paradigm the market is characterised by local adjustments as towns, villages and even parts of cities respond to local property demand & supply conditions.

Local rental property factors

For instance, in many provincial cities, city centre rents have been falling sharply as the glut in buy-to-let property from large speculative schemes has hit the property rental market and is not matched by sufficient tenant demand.

This more circumspect view is backed up by the 1st qtr 07 The Royal Institute of Chartered Surveyors (RICS) residential lettings survey for Great Britain which reported “overall tenant demand for residential investment property in the quarter to April increased at the slowest pace since Q1 2005.” This is hardly apocalyptic assessment but it is far from the ‘boom’ that the FT suggests.

However, generally the report is positive seeing rental levels for buy-to-let property increasing at their fastest pace since July 2006 as landlords attempt to shift the burden of higher buy-to-let mortgage costs on to their tenants. This picture was not uniform with changes in rents being strongest in the Midlands and London with 44 & 50{bc1e42e53d8565163e9cec719c82f5e0892e054fb5d628f08363879e07731a2f} respectively of the balance of surveyors reporting rent rises. This contrasts with the North and the East with figures of 14 & 10{bc1e42e53d8565163e9cec719c82f5e0892e054fb5d628f08363879e07731a2f}.

Landlords need to think locally

“Tenants really do command better accommodation these days with so many new builds to choose from. However, ever short supply of traditional 3-bed semis continues.” COLCHESTER

“There has been some fall-off in tenant demand, most noticeably for 3-5 bedroom properties, but there is a noticeable shortage of 2 bed units to let (particularly 2 bed houses).” NORTH WALSHAM

“Properties that have new kitchens/bathrooms or have been refurbished are seeing significant increases in rent.” RICHMOND

“There is a strong demand for houses in Warrenpoint however market appears to be flooded with apartments.” WARRENPOINT

“More properties required to meet demand – especially 1 beds.” WOKING

“There is an oversupply of modern flats to rent.” PRESTON

These are all quotes from chartered surveyors from the same survey but from different parts of the country. Their varied analysis underlies the diversity of each localised property rental market.

Highlights need for local research.

All these contrasting figures highlights the need for landlords to do their own careful research into their local rental market before buying a buy-to-let investment property. Eye catching headlines might make a visual feast & grab readers attention but they often do little to inform landlords. Property Hawk recommends that landlords take the following steps before buying to establish that market conditions are right for the type of investment property they are looking at buying.

PROPERTY HAWK TIPS

1. Talk to local letting agents – letting agents will normally have a good feel of the local market. Most will be more than happy to spend a few minutes sharing their knowledge of the local letting market especially if they think you might be a potential customer. They may even give you some advice about where and what to buy. Always speak to a number, at least two or three to get an overall feel.

2. Monitor the local letting ads – most areas have papers or a magazine which carries local rental ads. Make sure that you read these regularly so that you gain a firm understanding of rental levels in the area you wish to buy in. Note the numbers of properties up for let and the numbers of tenants seeking this accommodation.

3. Visit the area – is it a sea of lettings boards. This may point to oversupply. However, don’t panic often letting agents leave their boards up long after the property is withdrawn or let as a way of gaining free advertising so ensure that the boards do relate to properties still to let.

4. Don’t believe the hype – ignore the hype that the media and property professional might spin. Look at the figures and stay focused on the facts.