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Residential buy-to-Let

Investing in rental property: A look at the popularity of the private rented sector

Author: Staff

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The UK’s rental market has been getting more and more popular with investors since the financial crisis damaged the market for buying and selling. As those who were struggling to sell became so-called accidental landlords and saw how lucrative the sector could be, investing in buy-to-let became increasingly popular.

This has meant that even as the market for sales has improved, the popularity of the rental market has continued to grow, with yields of between six and seven per cent consistently giving investors a reason to buy.

According to the Association of Residential Letting Agents (ARLA), the number of properties being advertised in the rental market climbed by ten per cent in just three months at the end of 2014. Normally we would expect to see a sharp rise in stock cause prices to stall, but this has not been the case for the rental market, which has remained strong throughout.

Why is the rental market so popular?

The rental market has become a popular investment option for two reasons in recent years – it offers the chance for strong returns that beat out other asset classes, while also offering a relatively safe investment in current market conditions.

The first of these has been reinforced by the latest official data from the Office for National Statistics (ONS), which showed that even though the number of properties in the rental market has gone up considerably, the price rises have not been dampened.

Demand has meant that in 2014, the cost of renting climbed by 1.7 per cent. These price increases only help to offer landlords the sorts of returns that have increased the popularity of the rental sector to investors in recent times.

Of course, demand ties into this, and helps to keep the returns strong. According to findings published this week by Paragon Mortgages, the level of demand from tenants has meant that in the last quarter of 2014, landlords were seeing lower void periods than at any time in the past two years.

For most of last year, the average time that rental properties sat empty hung around the 2.8 weeks mark. However, in the last three months of 2014, this fell considerably, finishing on 2.6 weeks. This is the lowest vacancy time since mid 2012 and it sits only marginally higher than it did at its lowest in early 2002, when void periods averaged just 2.5 weeks.

Again, to see such impressive figures at a time when we know the levels of stock on the market was rising shows just why landlords are feeling so confident about putting their money into the rental sector, and what has made it one of the most popular asset classes in the UK over the past few years.

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