Landlords confident that upward trend in rents will continue throughout 2013
THIRTY-NINE per cent of landlords expect to increase rents next year, according to a landlord sentiment survey conducted by LSL Property Services plc, which owns the UK's largest lettings agent network, including national chains Your Move and Reeds Rains.
While just 1 per cent of property investors anticipate they will reduce rents next year, 39 per cent of the 1,223 landlords polled expect to increase them, with 10 per cent anticipating rises greater than 5 per cent.
Those expecting to raise rents anticipate they will do so by an average of 4.6 per cent, an increase from the 4.5 per cent annual rise landlords predicted last quarter.
Currently, average rents are rising at an annual rate of 3.4 per cent, according to LSL's latest Buy-to-Let Index.
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Charlie Staines, 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 per cent of landlords have seen demand rise, while just one in 20 have seen it decrease. Investors expect this growth to continue.
Two-thirds of landlords (65 per cent) anticipate demand will increase further in the next 12 months, while just 3 per cent expect it to shrink.
With the underlying fundamentals behind long-term investment looking strong, 49 per cent of landlords believe that now is a good time to invest in property, up from 48 per cent in the previous quarter. In contrast, less than 1 per cent 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 per cent) and strong tenant demand (52 per cent) as the two most enticing reasons, while 38 per cent are seeing better returns than in other forms of investment.
Despite the recent modest improvement in the mortgage market, just one landlord in 11 believes the availability of cheap finance is a key reason for why now is a good time to invest.
Mr Staines said: "Rising tenant demand has been at the heart of the recovery of the buy-to-let market and will continue to be so.
"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 per cent of landlords saw the time that their rental properties were vacant increase in the past year.
A total of 58 per cent of respondents experienced void periods of less than two weeks, including 19 per cent who saw no voids at all.
By and large, investors do not expect the situation to deteriorate, says LSL, with two-thirds of investors predicting voids won't grow next year.
Investors stated that the two main reasons for void periods in the last year were either from a delay while tenants' references were checked (20 per cent) or by marketing a property during a less busy period for the rental market (19 per cent).
Mr Staines said: "Higher rents haven't yet taken their toll on void periods and investors don't really anticipate this to change in 2013.
"However, it's clear that many short-term void periods are down to landlords taking extra pains to ensure the finances and references of new tenants – even at the expense of a few days' rental income.
"We see the new-build home market as a key area that will attract both professional tenants and landlord investors and with developers offering favourable purchasing options, this market will see growth in 2013."