Thousands of landlords that purchased buy-to-let rental properties are now experiencing falling monthly rent. Whilst this means lower housing costs for tenants, rental yields for landlords are falling at the very time that income streams from alternative savings and investments are also plummeting. What can this fall in monthly rent be attributed to?
Increase in Rental Properties Hasn’t Offset Falls in the Cost of Renting a House
Falling house prices and general uncertainty have deterred many potential first-time buyers from investing in property. This has increased the demand for rental properties, but an influx of new landlords, particularly in the Manchester area, is causing monthly rental yields to fall.
Whilst FindaProperty.com has experienced a 22% increase in new business, this isn’t sufficient to offset the increase in rental properties available. This has meant that the average amount of time it takes to rent a house has increased by 27% to 70 days during the last 12 months.
Where Has the Cost of Renting a House Fallen Most?
The average cost of renting a house across the entire UK has fallen from £840 in January 2013 to £830 in February 2014. This means that average rental yields are down 1.2% over the last month and 4.8% in the last 12 months.
Rental properties in the North West experienced the biggest decline in rental yields. Annual rental prices in the North West fell by 14.3% to £592 pcm from £645 pcm. This can largely be attributed to an increase in rental properties of 45.9% in the Manchester area. A staggering 57.8% of rental properties in the North West region are now in Manchester. Most of these are new build rental properties.
There was also evidence to suggest that more expensive areas, such as Kensington and Chelsea are experiencing falls of up to 11.7%. This is due to a number of reasons, but is heavily connected to falling City bonuses and a desire to reduce housing costs. This is backed up by the fact that the more affordable London Boroughs have experienced a 6.7% increase in monthly rental yields.
Whilst many landlords are experiencing falling rental yields, those that aren’t tied in to fixed-interest mortgages are benefiting from reductions in Bank of England base rates. Always remember the property is a long term investment and the property slump won’t last indefinitely.