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Landlords' returns rise as rental sector thrives

Posted on 2015-07-16

In recent years, as tenants in the UK take a longer-term approach to renting and more investors turn their hand to property, the Private Rented Sector (PRS) has been growing at an unprecedented rate.

With this increase in tenants, landlords and rental properties, returns for investors have also risen significantly. A report from financial firm Kent Reliance recently caught our eye as it estimates landlords' returns over the past year.

The Buy to Let Britain report says that in the past 12 months, British landlords saw total annual returns of £111.5 billion. The research also estimates that the PRS grew by 150,000 households in the year to March 2015 and that rented accommodation accounted for almost 78% of new households across all tenure types.

At the end of March this year, the total value of property owned by landlords totalled £990.7 billion, Kent Reliance reports, representing an 11% increase on the previous year's figure.

The firm says that the average property in the UK generated a return of £24,221 in rental income and capital gains. It multiplied this figure to calculate overall annual returns of £111.5 billion, £62.7 billion in capital gains and £44.3 billion in rents.

While this is a very interesting report, it is just that and it provides a wonderful example of how important renting has become to the UK's housing make up rather than any concrete conclusions.

As we can see, landlords' returns have gone from strength to strength, mainly due to property price rises which subsequently contribute directly to increased yields.

Just this week the Office for National Statistics reported that UK house prices increased 5.7% in the year to May, while earlier in the month the Halifax released its latest house price index which found that prices jumped 1.7% in June and 3.3% over the past three months.

As mentioned before, many tenants are taking a more long-term approach to renting, something that has been common practice in Europe for many years. This, combined with decreasing levels of home-ownership, caused the Intermediary Mortgage Lenders Association to declare last year that over half of homes in the UK will be rented by 2032.

The increased number of tenants also contributes towards reducing landlords' void periods, which subsequently helps landlords to achieve higher returns.

When looking at this from a tenant's perspective, these figures also represent some good news. Higher returns have allowed many landlords to invest more money back into their properties, helping to increase the quality of rental homes across the country and benefiting tenants in the process.

As people rent for longer, the pressure on landlords to provide quality housing stock will increase. The latest English Housing Survey shows that the quality of privately rented housing stock has improved in recent times. In 1996, PRS stock had a score of 48 out of 100 for energy efficiency. This figure increased to 58 in 2013. What's more, between 2006 and 2013, the number of private rented homes which were considered 'non-decent' fell by 17%, equivalent to around 2.4 million homes. For the sector to sustain growth, quality of stock will need to improve further in the coming years.

Looking ahead, despite the implications of last week's Summer Budget, prospects for landlords and investors remain positive as we move into the peak renting months of August and September.

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