Findings from the latest BM Solutions/ BDRC Continental Landlord Panel research show that the key driver for landlords turning to the private rental sector is to supplement their monthly income.
As income levels remain stagnant and disposable income is squeezed, a greater proportion of respondents (43%) reported that they were using the rental income generated to support their monthly expenditure. This is a 3% increase since Q2 2013.
The second most common driver was supplementing their retirement fund, with a third of respondents citing their reason for entering the private rental sector market as a means to prepare their finances for retirement. Respondents highlighted the importance of a property investment to a landlord's retirement provision, with 75% of landlords agreeing that property is their pension with property making up 62 percent of the average landlord's retirement provision. Over a third agreed that property investments offer a better return than shares as a long term investment, with reduced risk and the opportunity to add capital investment.
Commenting on the findings of the research, Phil Rickards, Head of Sales at BM Solutions said; “The squeeze on spending does mean that we're seeing more landlords using their rental income to supplement the cost of living. However, confidence in the UK property market is leading to more people entering the market, importantly seeing it at as long term investment rather than focusing on the short term.”
Confidence in the buy to let sector is now at the highest level seen in six years and almost back to pre-credit crunch levels, with 68% of landlords confident in the prospects for the future. In particular, optimism around capital gains and the broader economy has increased significantly.
Overall, 35% of landlords report that tenant demand is beginning to plateau, the highest proportion since Q2 2012 (38%). Landlords in the East of England (49%) and London (46%) reported the greatest level of demand from tenants, with the level of demand being reported in Yorkshire and Humberside (25%).
Increase in rental yields
Over the past quarter, the average rental yield in the UK dipped by 0.1% to 6%. In comparison, the average rental yield was 6.2% in Q4 2012, 6% in and 6.1% in Q1 2012. Over half (57%) of landlords raising rents increased rents when new tenants arrived, and almost the same proportion (51%) inferred the reason for raising the rent levels was to bring it in line with local prices. The strongest performing region was the North East achieving a return of 6.7%; conversely the weakest area continues to be the Yorkshire and Humberside which report yields of 5.7%.
36% percent of landlords reported at least one void period over the past three months, an increase of 3% on the previous quarter, with 65% of those being unexpected. Average void duration has however, fallen by five days to 64 days. The instances of void periods were greatest in the North East and lowest in South East. Two-thirds of landlords attributed the challenge of natural turnover and finding good tenants to replace those vacating properties as the most common reason for unplanned void periods.
Analysis reveals that the average tenant has stayed in the same property for two and a half years, with 1 in 10 staying in excess of five years.
Analysis reveals that an average of 1.7 tenants per landlord in arrears and this has fallen to its lowest point in three years. The average amount owed by tenants has fallen to a three year low this quarter, down by £358 to £1,532.