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Landlords `Nervous`

Date Added 22/01/2014

Buy-to-let landlords are feeling "nervous" as the rising number of tenants climbing onto the property ladder knocks rental income.

Rent rises in England and Wales slowed by half over the course of 2013, according to the latest buy-to-let Index from LSL Property Services.They still rose 1.5% in the 12 months to December 2013, but this is less than half the 3.2% growth seen in 2012.

Rents fell 1% in December, equivalent to around £8, reducing the average rent to £745 a month.

The sharpest monthly drop was in the South East, with rents down 2% since November. Rents also fell 1.9% in both London and Wales.

Some regions experienced annual falls in rents, notably the East of England, down by 4.4%, the West Midlands (2.7%), and Yorkshire & Humber (2.1%).

Despite the drop, landlords still made an average annual return of more than £14,000, largely due to accelerating house price rises.

David Brown, commercial director of LSL Property Services, offered some consolation to landlords. `Early indications show wage expectations are starting to look up – and general inflation is under control again.

"If this can take hold, more prosperous tenants will make for a more prosperous private rented sector in 2014.`

Gross yields on a typical rental property remained steady at 5.3% in December.

But the total average annual profit rose to 8.8%, up from 8.3% in November, due to accelerating house price rises.

This represents an average return of £14,372, with rental income of £8,189 and capital gain of £6,183.

If rental property prices continue to rise at the same pace as over the last three months, the average buy-to-let investor in England and Wales could expect to make a total annual return of 6.6% over the next 12 months, equivalent to £11,234 per property.

`Steadier rent rises, and the usual seasonal dip over the winter, shouldn`t put off anyone considering a buy-to-let investment,` said Brown, `Supply of housing is still seriously restricted in the UK, so much-needed investment looks set to be handsomely rewarded as demand is driven further by an economic pick-up in 2014.`

David Whittaker, managing director of Mortgages for Business, said: "With property prices rising and rental growth slowing, landlords may be feeling nervous about protecting their incomes.

"More and more are turning to more complex deals with higher yields, in order to safeguard their returns and the security of their tenants` homes.`
Help to Buy and other forms of stimulus have helped more people buy and slowed the growth in average rents, he said.

"There remains a significant shortage of housing in the UK and despite schemes like Help to Buy thousands of people continue to be reliant on private rental accommodation because of the difficulties in raising even the smallest deposits."

The number of new tenancies agreed increased by 7.7% over 2013, despite a 12.7% drop in new lettings in December.
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