Landlords expect rents to rise

While just 1% of property investors anticipate they will reduce rents next year, 39% of the 1,223 landlords polled by LSL Property Services expect to increase rents in the coming 12 months with 10% anticipating rises greater than 5%.

Those expecting to raise rents anticipate they will do so by an average of 4.6% - an increase from the 4.5% annual rise landlords predicted last quarter. Currently, average rents are rising at an annual rate of 3.4% according to LSL’s latest Buy-to-Let Index.

David Brown, commercial director of LSL Property Services, said: “Fierce tenant competition in 2012 enabled many landlords to raise their asking prices when letting their properties, preventing inflation from eating into their rental income – and this is likely to continue in the next 12 months.

“Pension savers have been hit particularly hard by the Autumn Statement and as rental incomes improve buy-to-let looks increasingly attractive as an alternative long-term investment.”

Growing tenant demand has been the key factor in recent rent rises. In the past six months 43% of landlords have seen tenant demand rise while just one in twenty have seen demand decrease. Investors expect this growth to continue.

Two thirds of landlords (65%) anticipate demand will increase further in the next twelve months while just 3% expect demand to shrink.

With the underlying fundamentals behind long-term investment looking strong 49% of landlords believe that now is a good time to invest in property, up from 48% in the previous quarter. In contrast, less than 1% think now is a good time to reduce their portfolios.

Landlords who think now is a good time to buy rental property cited attractive property prices (84%) and strong tenant demand (52%) as the two most enticing reasons, while 38% are seeing better returns than in other forms of investment.

Despite the recent modest improvement in the mortgage market, just one landlord in eleven believes the availability of cheap finance is a key reason for why now is a good time to invest.

David Brown said: “With lending to first-time buyers without substantial deposits historically subdued and the number of UK households increasing, landlords expect demand for rental accommodation to swell further. Purchase prices are still down on their peak, and as rents rise annually, there are some attractive yields on the cards for new investors that do their homework before buying.”

As a result of strong tenant demand, just 15% of landlords saw the time their rental properties were vacant increase in the past year. Around 58% of respondents experienced voids periods of less than two weeks, including 19% who saw no void periods at all.

By and large, investors do not expect the situation to deteriorate, with two thirds of investors predicting voids won’t grow next year.