We know buy-to-let and being a landlord is a ‘long-term game‘ – one in which landlords try to make some kind of profit each year with any real value likely to be ‘held back‘ until 15/20/25 years in the future.
Those small yearly profits are vital though because they keep the landlord in the ‘game‘ to allow them to have the best chance of securing those capital increases.
It’s also why recent data on increased tenant demand, rental levels and yield is so important because it’s within such an environment that landlords will have greater confidence to be more active, to add to portfolios, and to help fill the chasm that is housing supply in this country. It’s also why advisers might well have more opportunities with their landlord clients during such a period.
Our own recent quarterly Rental Barometer showed an increase in rental yields across the vast majority of regions where Fleet lends in England, and given the levels of tenant demand we anticipate in the months ahead, we do not anticipate any major drop-off in these figures.
This view appears to be backed up by other research and data on rental levels and indeed tenant demand. Homelet research suggested average rents in the UK had increased month-on-month by 2% in October, and yearly rental values had gone up in 10 out of 12 UK regions.
Whereas the Fleet Rental Barometer showed the biggest yield increases in Northern England regions, Homelet suggests the biggest increase in rents are being seen in the South West. It seems fair to say that in areas right across the country, perhaps with the notable exception of London, rents are on the up and subsequently landlords should be able to secure growing yield levels.
Why might that be? Well, the obvious answer is tenant demand – the latest Yomdel Property Sentiment Tracker looks at the number of enquiries agents get every week from those looking for rental properties.
For the week ending 8th November, it suggests that tenant enquiries increased 12% on the week previously, and were 23% up on the same week in 2019. It also suggests this is tending to come from either single or family occupancy rather than those looking for tenancies in shared households, which – if it is a trend that continues – might have interesting repercussions for the HMO sector.
Perhaps we should however not be surprised by any of this – not the increase in tenant demand, the increase in rents and yields, and the current skewing of tenant demand towards single households for individuals and families.
2020 has been a unique year, to say the least, but there has been a level of consistency across both the owner-occupier and the private rental sector, and that stems from what people prioritise when they are looking for places to live, the type of property, its amenities, its location, etc.
Now, you will argue with plenty of logic, that it has always been like this, but that’s not entirely correct, because what people prioritise in a home may well have been changed by COVID-19 and lockdown.
So, whereas pre-COVID, living in a city centre high-rise apartment block with friends might have been suitable, now it might seem like the worst of all worlds, with no outside space, and a number of things what make living in a city worthwhile simply not accessible. Of course, it may not always be like this – and certainly, the recent news about a vaccine brings the likelihood of normality closer and closer – but people will remember, and a number may believe that, should this ever happen again, it will be better for them to live in a different type of property, in a different area of the country – perhaps closer to family, and to essential move home now to something that suits those priorities.
This, of course, represents a significant shift, and it may well mean landlords are going to need to re-evaluate their portfolio make-up and whether they fit what is required by tenants. However, overall, the statistics and data is telling us that tenant demand is strong – it just may not be as strong in the future in certain areas where it has been in the past.
What we’re also seeing as well is a flight to flexibility. By that, I mean that individuals are willing to ‘try out‘ new areas or new ways of living, but they are not willing to purchase them just yet. Instead in a classic case of ‘try before you buy‘ there may be a tendency to rent somewhere first, to see how that works out, whether it suits, with a view to (somewhere down the line) potentially purchasing in that locale.
Renting allows those individuals to see how the short- to medium-term plays out; to see if what they value now is truly right for them; to see how the economy reacts; to see if a vaccine does return us to a more normal working and living environment; to see if living further away from work and working from home more is the right type of work/life balance. All this comes into play and makes the PRS perhaps even more important in meeting the housing needs of this country.
