Increasing rents could be good news for property investors

The Momentum UK Team 18 April 2013

Potentially increased yields driven by heightened demand for rental property may be a driving force behind an many investors turning to the property market to generate returns.

According to the Countrywide Quarterly Lettings Index, average rent has risen in all areas of the UK except Scotland and the South East in the first quarter of 2013 when compared to the same quarter of last year, while rental arrears have fallen in all areas apart from Scotland.

The biggest rise seen was in the east of England and in Wales which both saw a 5.5% increase in rent, up to an average of £618 and £814 per month respectively.

The highest rent levels, according to the report, were seen in inner London where the average was recorded as £2,387 per month in quarter one of this year up by 1.9% from the same time period in the previous year.

Meanwhile the south east and Scotland, the only areas where falls were recorded, saw a drop in average rent of 1.1% to £1054 and 2.6% to £580 respectively, making Scotland the cheapest place to rent in the UK.

Commenting on the Index, Nick Dunning, Group Commercial Director at Countrywide plc, said:

“It shows that the rental market continues to develop strongly with some interesting movement in market dynamics from London to the regions. The growing average monthly rents across the UK shows the increasing attractiveness of regions outside London. London remains a good place to buy property, but investors are venturing further afield for investment opportunities.

“Scotland is an anomaly to this - with falling rents and increased arrears being compounded by recent legislative changes, investors might be deterred from buy-to-let investment.”

Buy-to-let mortgage approvals increased from 121,500 in 2011 to 136,900 in 2012, although half of those mortgages approvals were accounted for by landlords remortgaging their property, buy-to-let mortgages now account for 13% of mortgages.

However, while the buy-to-let mortgage market may look attractive to the investor from the outside, the reality is that investing in property comes with a number of risks that should be considered carefully.

For example, when working out potential return from rental income, it’s important to consider not only the initial costs of purchasing the property which typically requires a minimum of a 25% deposit and a 40% deposit to access some of the better rates, but also the ongoing costs involved in being a buy-to-let investor including agency fees, insurance, maintenance costs, income tax payable on rental income and any periods when the property may be left empty.