The need for supply
Increased supply is critical to offering tenants more choice, raising the standard of private rented accommodation and addressing affordability issues affecting some markets. Research from Rightmove indicates 63% of current tenants expect rents to be higher in 12 months, illustrating the shortage of supply is creating severe upwards rental pressure. This could lead to a ‘rental bubble’ in some locations.
The average gross income yield across the UK is 5.8%, a figure which rises to 7.7% for investors able to secure discounts of bulk purchases. Income yields do not vary significantly between regions and yield variations are much more closely linked to localised differences between high and low value markets (particularly in London). First Class Realty currently offers UK deals with up to assured 9% and 10% NET yields per annum, beating the ‘average’ by a large margin. Take a look at our currently available UK property.
A market mismatch
The level of unmet demand for private renting continued to rise. ReMax Colonial research shows that search activity has more than doubled over the past two years, whereas available stock for rent is down by nearly 10%. Meanwhile, the Royal Institute for Chartered Surveyors (RICS) reported letting activity outstripping new supply for 11 successive quarters.
Small private investors are likely to balance income yield and capital growth prospects, take a long term view on house prices and invest across the UK according to their means and time frames. Larger institutional investment is critical to meeting the demand for private rented accommodation. In the short to medium term we expect it to be focused in London and the South East. This requires rental stock to be delivered by the new build market, in volume and at a discount to owner-occupied values. To facilitate this may require a change in the planning system, with PRS housing being increasingly interchangeable with affordable housing.
Select Realty Online opinion
This is a critically important report for existing and potential investors in property. It underlies the huge shift to renting, the demand for more than one million additional rental properties and the continuing upwards pressure on rents.
Combine this with incredibly-low purchase prices and the outlook for UK property investors is, in my opinion, better than at any time in the last 40 years!
Location, location, location
Location is also critical and we select the right neighbourhoods based upon the following criteria:
• Correct pricing – too expensive and the rental yield fails.
• Reasonable city tax – in some areas the tax is too high.
• Good neighbourhoods – desirable residential areas.
• Convenient locations – for transport, school, work, amenities etc.