Demand for rented accommodation creates opportunity for investors

Caroline Kavanagh, Group Lettings Director of Townends estate agent part of the Badger Holdings Group, comments on the year that has been and gives her predictions for the resident

Related topics:  Specialist Lending
Millie Dyson
2nd December 2011
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She said:

“Much the same as last year, high demand and low supply has been the ‘theme’ of 2011, causing rents to rise by an average 20 percent across London and the South East.

"In some areas such as Putney, rises have been nearly double this average, with a two bedroom apartment in a sought after location rising from £1300 per calendar month (pcm) this time last year, to nearly £1800pcm today, a 38 percent increase.

“It is easy to see why rent rises have accelerated so quickly when you consider that while there have been some new investors and accidental landlords providing additional opportunities for tenants, this has not been nearly enough to satisfy the demand from the 15-30 percent rise in applicants versus this time last year, and a staggering 44 percent increase since 2009.

“What has been apparent to agents as the rental market has grown, are the high expectations from both tenants and landlords.

"Some landlords expect to achieve maximum rent for their property regardless of location or condition but also want to secure the best quality tenant. As many tenants have had to succumb to higher rents, in return, they expect to be getting more ‘property for their pound’.

“The fact is that it is not possible for rents to continue rising at the rate they have been next year, as this is not sustainable and tenants will simply be forced out or will take a more stubborn approach of “can’t pay, won’t pay”.

"We have already seen instances of this with some tenants looking at alternatives in order to avoid higher costs, be that moving back with parents, downsizing to a smaller rental property or opting to share with others.

“Despite this, I believe demand will remain strong and peripheral areas of prime locations will start to benefit from the overspill of tenants in need of more affordable accommodation, which in turn will provide even greater investment opportunities for landlords to expand their portfolios. 

“Mortgage finance has eased within the buy to let market and this has provided those wishing to invest with greater opportunity. 

"A modest number of new landlords have started dipping their toes in the market but there is plenty of demand for more and as other investment options continue to give little in return, property will become an increasingly attractive proposition and a more viable long term investment for many.

“Heading into 2012, demand will almost certainly continue to outstrip supply.

"However, with signs that rents are stabilising, next year is likely to be more balanced, meaning landlords will have to be more realistic, perhaps weighing up the pros and cons of keeping a current and reliable tenant but accepting that the rental income will remain the same, versus facing the open market in a bid to secure a tenant possibly willing to pay more.

"Reports out suggest many landlords are looking to grow their portfolios in 2012.

"Despite developments, there is an incessant need for the banks to free up more mortgage products to assist these ‘would be’ investors and ensure the private rented sector can withstand continued demand, which ultimately will also help the economy.”
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