Rental Property

Net yields rise for buy-to-let landlords as the timescales to find a tenant falls

Rental Property

The cost of agreeing a new tenancy rose 3.7% over the past year with rental growth continuing to be driven by London and the East of England, according to Countrywide Residential Lettings, the UK’s largest lettings agency.

In the Capital, the cost of a newly agreed tenancy rose 7.4% to stand at an average of £1,

229pcm in October 2014 on the back of a cooling sales market. The uplift in rents when a tenant signs a new contract is a strong indicator of future sentiment and prospective increases in rent for sitting tenants. For a new tenant it represents the cost of accessing the rental market.

However, it does not automatically follow that a rise in newly agreed rents is immediately passed on to all tenants. The average tenant in the UK saw their rent rise 1.7% over the past 12 months, below the 3.7% seen by a tenant agreeing a new contract. Tenants signing 12, 18 or 24 month deals during which the rent is fixed and landlords choosing not to pass on increases to sitting tenants underpin the difference between the two rates of rental growth.

Rising occupancy rates

The average rental property remains empty for 14 days a year, one day less than in the first half of 2014. This represents an occupancy rate of 97%, with half of all available properties let within two weeks. A reduction in the time a property remains empty means there are fewer days when a landlord is not receiving rent, which serves to push up net yields. The number of days a property is empty tracks not only the time to find a new tenant, but also the time needed between tenancies to carry out repairs and improvements.

Properties in London, the South East and the East of England remain empty for an average of less than 14 days each year, serving to drive down costs and place a degree of upward pressure on yields. Across Wales, the North East and the North West, properties remain empty for longer, an average of 18 days a year, indicative of the additional time required to find a tenant.

Commenting on the Index, Nick Dunning, Group Commercial Director, Countrywide plc, said:

“Void period offers landlords the opportunity to re-assess market conditions, make improvements and adjust the rent accordingly. Rental growth predominantly occurs when a property is re-marketed and let to a new tenant. An increase in rent for someone moving into a new property will filter through to the rest of the market more slowly, as and when tenants move and new contracts are negotiated.

“While the level of demand means that the time taken to find a tenant is at a near record low, landlords should still factor in a short period when their property will be empty. While voids are often associated with the time taken to find a tenant, in stronger markets property can be re let in advance of it becoming empty. Even in these strong markets, time to carry out repairs and facilitate a handover between tenants is a cost which needs to be factored in.”