Great time to enter buy-to-let market

Falling supply of new homes to the rental market coupled with greater demand, makes now a great time to enter the buy-to-let market.

The latest Buy-to-let index from LSL Property Services plc shows that rents increased for the 10th consecutive month in November, with the average UK rent at £692 per month.

The greatest rental growth was recorded in the London property market, where rents rose by 1.8% to hit £992 per month.
The average yield is up to 5%, thanks to increasing rents, contrasting with a slight decline in the value of an average rental property.

New home developer Telford Homes still have some new homes remaining at its Vellum development in the Olympic Borough of Waltham Forest. Those new build homes in the development recently sold are yielding investors an annual rental yield of around 7%.

The latest RICS Residential Lettings Survey compliments LSL Property Services plc's index, with 39% more surveyors reported seeing an increase in the three months to the end of October, than a fall - up from 27%). The net balance reading is now at its highest level since Q2 2007.

New landlord instructions - a good indication of supply to the market - slipped further, marking five consecutive quarters of falling instructions.

Looking ahead, the outlook for rents over the next three months remains very firm. 34% more surveyors expect rents to rise than fall, with the expectation that rents for houses will increase at a slightly faster rate than for flats.

Jeremy Leaf, spokesperson at RICS, said: "The lettings sector has become increasingly strong over the past nine months, in contrast to the housing market which continues to slow. Many have turned to the rental market because they fear further price reductions in the housing market, or because they cannot obtain the necessary finance to buy.

"As a result, rents continue to rise with supply failing to keep up with demand. However, there are increasing indications that more landlords are recognising these benefits and l ooking to add to their portfolios - especially as there has been a rise in the number of providers willing to offer investment mortgages in recent months."

David Brown, commercial director of LSL Property Services plc, commented: "In the run-up to Christmas, we tend to see the rental market slowdown somewhat. Tenants prioritise Christmas spending over setting aside money for moving home. But with the limitations placed on the supply of rental property by the lack of mortgage finance, rents have continued to increase - even though the rental market's peak season is behind us.

"Nevertheless, rent increases have begun to slow in several regions, and we expect this trend to continue across the country in December and January. However, the UK's buy-to-let market still faces a shortage in the supply of rental properties and we don't anticipate that the slowdown in rent rises will last long as we go into 2011.

"Returns are slowing as annual house price growth steadies. But investors are faced with a fantastic opportunity. With property prices beginning to dip, and yields improving, it is a great time for landlords to expand their portfolios and lock-in high rents. Even off-peak, tenant demand has remained robust enough to lift rents and the chronic lack of affordable housing and mortgage finance for first-timers will continue to augment demand from tenants, keeping rents high in the long-term."