New figures show that private rental prices paid by tenants in Britain rose throughout 2014. This week Simon Morris asks; what could this mean for UK property investment funds?
Long-Term Revenue Stream
A London-based property consultant, Simon Morris uses his expertise concerning the UK property market to show UK property investment funds how they can reap maximum returns on property investment.
The consultant’s experience has shown him that long-term revenue streams can prove valuable for the property portfolio of any UK property investment fund. Rent can provide that long-term revenue stream, especially when the rental market is on the up.
Private Rent Prices Rise 1.7%
Which it appears to be at the moment. According to Property Wire, new statistics from the Office for National Statistics (ONS) show that private rental prices paid by tenants in Britain rose 1.7% in 2014. Broken down, rental prices rose 1.8% in England (with London boasting a rise of 2.4%), 2% in Scotland and 0.2% in Wales.
These figures proved a surprise to many in the sector, as they are a dramatic upwards revision from previous ONS estimates. An ONS spokesman suggested that this is because of a revised methodology. “Improved methodology has been implemented leading to revisions to the full IPHRP (Index of Private Housing Rental Prices) time series. The latest data uses the new methodology.”
“Rents Still Aren’t Rising Much Faster than Inflation.”
Methodology aside, Mortgages for Business director David Whittaker argued that it’s no surprise that rents are increasing quicker than previous ONS predictions. The managing director noted that even your bog standard buy-to-let commands a 6.3% average yield according to Mortgages for Business’ Complex Buy to Let Index. A bigger multi-unit freehold block can amass a rental yield of 9.3%.
Yet the managing director was quick to point out the realities of this rise. He argued: “But rents still aren’t rising much faster than inflation. We’re talking an average annual rent rise of 2.1% over the last couple of years instead of 1.2%. Affordability of renting, like the affordability of most things in an unprecedented economic slump, has been squeezed. But the culprit hasn’t been excessive rent rises.”
Whittaker went on to comment: “That’s thanks to the vast investment that landlords are pouring into this industry, supported by a healthy buy to let mortgage market. More homes to let are keeping rents from rising at an unhealthy pace.”
Simon Advises Funds to Tread Carefully
Therefore these figures show that rental property could prove lucrative for UK property investment funds going into 2015. Yet as Simon advised when looking ahead to 2015, investing in property comes with risks, so funds should tread with caution before capitalising on the benefits of rental price increases.
More information can be found on the About Simon Morris page.