What does the new lifestyle trend and rising rents really mean for buy-to-let landlords?
Great news for buy-to-let landlords has emerged in the last couple of weeks. First, rental prices in the private rented sector (PRS) have continued a rising four-year trend. Second, a third of tenants would be happy to rent for life. What does this mean for your property investment?
Rents continue to rise in the UK
Figures released by the Office for National Statistics (ONS) show that UK rental prices increased by 1% between January and February, making an average increase of 1.1% in the 12 months to February 2019.
It’s even better news for buy-to-let landlords outside of London. Rents in London are almost stagnant, rising by just 0.2% year-on-year. If this poorer performance is taken out of the equation, the average rent rise in the UK increases to 1.5% year-on-year.
The trend of rising rents has now been embedded for four years, since January 2015, and shows no sign of waning. In fact, with wages now rising faster than inflation, we believe that rents could push higher faster in the future, as tenants become more able to pay higher rents.
A third of tenants would be happy to rent for life
A survey by Hillarys, the home interior specialist, has found that 35% of tenants would be happy to rent for life. This marks a serious change in lifestyle desires. There was a time when everyone in the UK wanted to own their own home when home ownership was considered a measure of personal success. Today, however, the survey found that more than half of tenants are happy to be renting, meaning that two-thirds of those happy to be renting now would be happy to be renting indefinitely.
Why do tenants like renting?
It may be that the way in which society has developed has had a big effect on people’s views of renting and the benefits of being a tenant rather than an owner. There are no jobs for life now, and this means it is more likely that people will move to find work or be relocated by their company.
The gig economy also means that working as a freelancer is a career choice – and these people are not tied to a single location for work. The age of the ‘digital nomad’ is upon us, with more people working from home and servicing clients across the UK or the world.
The main reasons tenants are happy to rent rather than buy are:
- The flexibility of moving home (37%)
- Affordability (27%)
- Not having to worry about repairs and maintenance (14%)
Almost one in ten tenants said that they aren’t sure they would want to live anywhere permanently, while 6% said that buying a home would be too stressful.
What does this mean to the buy-to-let investor?
With more tenants happy to rent for life, the number of rented households is likely to continue rising. Demand for rental property is not going to decline. This is likely to lead to continuing rental increases, with landlords who provide homes in a good state of repair and the most in-demand locations benefitting most.
As an example of how an investor’s finances might benefit from these PRS dynamics, let’s consider an investment made in a property valued at £225,000 today, with a £150,000 mortgage at an interest rate of 4%, and at a rental yield of 6%.
If property management costs are, say, 15% of rental income, rents increase by 1.5% per year over the next 20 years, and the mortgage interest rate remains at 4%, here’s how your income will be affected:
|Year||Gross Rental||Mortgage Payments||Property Management Fees||Net Rental Income|
Put another way, your net rental income will have increased by £3,752 per year or 68.5%. That’s an average of almost 3% per year, without having to work for it! And this is before considering any increase in value of the property.
The bottom line
Read the headlines and analysis of the UK residential market, and you’ll be forgiven for thinking that renting is a last resort for most people. The Hillarys survey shows that this simply isn’t true. Renting is a lifestyle choice for many. We believe that this lifestyle choice will continue to grow, with the result that demand for rental properties will continue to increase.
Increasing demand for rental properties is likely to maintain or increase upward pressure on rental prices. Tenants will be happy to pay higher prices for the benefits of renting, and they will be more able to do so with wages rising faster than inflation.
Owning a property isn’t for everyone, but, as you can see, investing in buy-to-let could really make a difference to your income and lifestyle in the future. Give your tenant a positive rental experience, and both you and they will benefit from your decision to be a buy-to-let investor.
To achieve the best results from your buy-to-let investment, email Mike Hollamby (firstname.lastname@example.org) and learn what makes property management by Ezytrac so effortless.
Live with passion