London property rents set to rise by a quarter in the next five years

Buy to let investors are set to see profits rise over the next few year with rents set to reach record levels. New research has found that rents in England and Wales have already reached a new high in 2012 and are set to rise further over the next five years. High net worth finance clients who are building up a portfolio of buy to let properties are therefore set to benefit from increased rental yields. We look at the current state of the rental market and why a London mortgage broker believes the time is right to invest in property.

High value mortgage clients with buy to lets set to benefit from higher rents

New research from LSL Property Services, the company which owns lettings agents Your Move and Reeds Rains, has found that average rents in the private sector in England and Wales have reached a high of £741 per month. The average rent in Greater London is now £1,092 per month.

LSL director David Newnes said: “Every pound monthly rents go up, there’s another pound renters cannot save for a deposit for their first home. This is lengthening their stay in rented accommodation and increasing competition in the private sector.”

And, as London property rents hit record highs, a leading property consultancy believes that high value mortgage clients are set to benefit from even higher rental income over the next few years. Savills’ recently released forecast for the 2013 housing market says that average rents across the UK will rise 2.5 per cent next year. In addition, there will be a cumulative hike of 18.2 per cent between now and the end of 2017.

The Guardian reports that ‘the biggest rises will be in Greater London, where population and economic growth will be the highest in the UK. Savills says rents will grow 26.4 per cent in the next five years.’

Yolande Barnes, head of research at Savills, said: “In London the number of households in the private rented sector has risen 90 per cent over the past 10 years while the population of 20 to 34 year olds has grown by 18 per cent. At the same time, the average first time buyer deposit has risen from £12,000 to £58,000.”
Islay Robinson, CEO of London mortgage advisor Enness Private Clients, said: “With rents in London set to rise by over a quarter in the next five years it’s a great time for our high net worth mortgage clients to consider buy to let. It offers the potential for capital growth and, as we have seen, an excellent income.
“A recent survey from the National Landlords Association found that four out of five landlords regard their properties as their pension. Almost two in five (39 per cent) say they will choose a retirement date based on the state of the housing market and the value of their assets.”

While income from rents may be rising, a leading estate agency has warned potential landlords that it may be some time before their property returns a capital gain. Knight Frank has forecasted that house prices will fall again in 2013, including a 0.6 per cent fall in Greater London.

The Guardian concludes that ‘the emphasis for landlords will therefore be on rental income and not capital growth, a fact which means only one thing – hard-pressed tenants will have to pay even more in future.’