HOME RENTALS SET TO RISE
Letting agents are already reporting increased demand for rental accommodation on the back of the recent two half-percentage-point interest rate increases, which could see the market revert back to the traditional 10%/year rental escalations sooner rather than later.
Few buy-to-let investors have been able to pass the standard 10% rental increases on to tenants when leases came up for renewal, as an oversupply of rental properties kept a tight lid on rental growth.
However, the fortunes of buy-to-let investors are likely to change for the better over the next few months as affordability issues force potential homeowners to put buying plans on hold, says Jack Trevena, MD of home loan originator BondExcel.
Overextended investors
Overextended investors are also expected to offload some of their properties, decreasing the current rental oversupply. Trevena says that should provide much-needed support for residential rental yields. Most buy-to-let investors have seen rental yields halve over the past three years, with average net rentals currently at around 6% of market values.
Neville Schaefer, CEO of national letting agents Trafalgar, echoes the same sentiment. He says recent rate hikes are no doubt encouraging more people into rented accommodation, either due to an inability to cover mortgage repayments or because of the security offered by a fixed-term lease agreement.
Schaefer expects rentals to start rising faster than house prices in the next year as the property boom continues to slow. That means income yields will start to grow beyond their current average of around 6%/year. – Joan Muller
Article courtesy of Finweek.
- 23/08/2006
