PRS Rental Yields Increase Again

In the UK the combination of high tenant demand, increasing rents and realistic vendor pricing of properties for sale has been a major driving factor behind the increase in PRS rental yields.

Buy-To-Let rental yields increased from 6.1% to 6.7% over the last quarter of 2012, with the biggest jump in the private rented sector (PRS) coming from houses in multiple occupation (HMO’s) up from 9.2% to 11.1%.

A much needed increase in the availability of buy-to-let mortgages, as well as the development of Rent Guarantee insurance, property investors are really seeing the benefit of buying high yielding low priced properties for rental purposes, outside of London and the South East of England where rental yields have predominantly been squeezed, has been fuelling the growth.

There has been a great deal of speculation that the UK PRS is becoming over saturated with rental properties, but with the option to buy property not viable for many due to overly strict mortgage lending criteria, it seems that the rental boom is set to continue for the time being.

Tenants are not giving landlords all their own way and many are shopping around before committing to a long term tenancy as they are increasingly concerned with the expense of utility charges and information on EPC’s are being used to make the decision to go ahead with the renting of more efficient PRS properties.

Aside from the cost of the rent, (which can be protected at low cost), Gas, electricity and water account for up to 20% of a tenant’s average monthly outgoings, so insulation and energy efficient heating is becoming a deciding factor for many would be tenants. Unfortunately though, any potential financial saving from utility suppliers is often countered with an increase in the price of the rent.

There are also a number of key factors deterring even the most optimistic potential buyers that are driving the extent of the current rental boom in the UK including a general lack of bank lending, the uncertain nature of employment thanks to the recession, and immigration as many who are new to the UK are not initially in a position to be able to buy property of their own.

Buy-to-let rental yields alone cannot predict better times for the whole of the UK property market, but Buy-To-Let property was the spark that ignited the previous recovery so let’s stay positive that that the upward trend continues!