New data has shown that private residential rents have gone up over the past year. Property expert Simon Morris explains what this could mean for investors in the buy-to-let market.
Buy-to-let returns increase 1,400% since 1996.
Buy-to-let is a great revenue generator for investors. It allows them to take advantage of rent paid by tenants to create a long-term stream of profit.
Evidence shows that the buy-to-let market has become increasingly profitable. A report conducted by Wrigglesworth Consultancy for peer-to-peer lender Landbay, shows that returns on buy-to-let have increased a staggering 1,400% since buy-to-let mortgages first became available in 1996.
Private residential rents rise 2.1%
New figures suggest that buy-to-let landlords have had a profitable year. Data from the Office for National Statistics show that private residential rents ticked up 2.1% in the year to March 2015.
Broken down, this means that private residential rents rose 2.1% in England and Scotland in the 12 months to March 2015. However they increased at a less meteoric rate of 0.8% in Wales. London registered the biggest rise; private residential rates in the UK capital soared 3.2% in the year between March 2014 and March 2015.
Why are private residential rents rising?
Matt Hutchinson, director of flat and house share site SpareRoom.co.uk explained why rents are rising. He was quoted by Property Wire saying:
“We have a chronic shortage of housing in the areas where jobs are being created, so rents continue to rise as supply fails to meet demand. In some areas of London we’re seeing up to 13 people compete for every room advertised during peak months.”
Think carefully before investing in buy-to-let
This could be good news for buy-to-let investors. However this depends on whether the conditions which have spurred private residential rent increases continue to characterise the market. If they do, buy-to-let could prove a profitable venture for investors in 2015.
However I would advise anybody who’s looking to capitalise on rising private residential rental prices to think carefully so they invest minimal capital to accrue maximum returns. For example, if an investor wanted to take advantage of rent rises in London, they could buy a residential property for less than £500,000 and maximise returns.