Britain in grip of buy to let boom as rentals reach a record average of £718 a month
Figures from the Council of Mortgage Lenders (CML) reveal that demand for buy to let mortgages has increased dramatically in the past few months as property investors look to cash in on the flourishing rental market. Between July and September 2011, 34,500 buy to let mortgage were granted, totalling £3.8bn in value compared to 29,700 and £3.2bn in the previous quarter.
The CML said: 'On both measures, buy-to-let lending was at its highest level since the final quarter of 2008.'
CML director general Paul Smee remarked: 'With tenant demand remaining strong in the rental sector, some existing buy-to-let landlords have been expanding their portfolios and the growth that returned to the sector in the preceding quarter has continued. 'The recovery of buy-to-let from its low point in 2009 has helped improve supply and choice in the rental market'.
The increase in demand coincides with a rise in monthly rental values. The latest Buy to Let Index report from LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains reveals that rents rose in every region of the UK in September 2011, pushing the average rent to a record high of £718 per month, £29 higher than September 2010. If you look at London alone the average rent for September 2011 is £1,029, which is an annual rise of 5.8%. Landlords are now getting an average yield of 5.3%, an increase of 0.1% from August.
Rents increased the fastest in the South East and the East Midlands, where they rose by 1.8% and 1.1% respectively compared to August, while the smallest increases were in the West Midlands and the North East, where rents rose by 0.2% and 0.3%.
David Newnes from LSL Property Services commented: “Rising rents may prove to be a headache for tenants, but they are improving the outlook for investors – which may in turn encourage further investment in the private rented sector. Despite capital losses after house prices fell annually, growing rental incomes means returns are still in the black. Yields have risen to their highest level since the housing downturn, outstripping many alternative investments. With house prices yet to resume their upwards climb, there are opportunities for prospective investors to secure profitable bargains.”
The booming market has been attributed to the problems experience by many prospective first time buyers who have encountered difficulty getting a mortgage because of the large deposits needed, and as consequence have been forced to continue renting rather than trying to get on the housing ladder.
Estate agent Savills believes that rents will continue to rocket for the foreseeable future, fuelled by competition among tenants. They predict that by 2016, private renting will account for one in five households with average rents forecast to rise by as much as 20.5%. This compares with a predicted average house price rise of just 6% during the same time period.