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Buy to let landlords will see properties generating a better return from rents than yields over the next five years, according to a leading property consultancy.
Savills have forecast rents will surge upwards by 20.5% as the housing market shifts from a buying to renting model, driving more tenants to let property.
Meanwhile, house prices will increase by around 6%.
Rising rents is not necessarily all good news for landlords – although profits will go up, more corporates are expected to enter the market as yields improve and house prices stabilise.
Savills’ director of residential research, Yolande Barnes, said: “We have long been advocates of residential property investment in the private rented sector.”
“Until recently this has primarily been predicated on the expectation of increased capital value, but there is now a strong case on the basis of income.”
Ms Barnes reckons that while rents have risen sharply this year, a shortage of property to rent means the market will not overheat.
Swedish property investment firm Akelius has already announced spending of £2 billion on flats around London over the next five years.
The buy to let rental market is thriving, but according to the latest borrowing figures from the Council of Mortgage Lenders, the market is languishing at 66% below the peak of the property bubble.
Lee Gladwell, Business Development Director at Platform, the Co-op’s buy to let lending arm, said:
“The figures released by the Council of Mortgage Lenders reaffirm what brokers have been saying to us for the past two years and it is unsurprising that the buy to let sector is growing at a significant rate
“The rental market is booming and with reports that renters are now applying for homes, alike to how they apply for jobs with detailed CVs being submitted covering everything from qualifications to social habits, established and newer landlords are no doubt capitalising on this trend.
“One of the main drivers for growth in buy to let lending is undoubtedly the fact that would-be first-time buyers are finding it difficult to raise deposits. However there are many other factors that are likely to be driving the growth including economic uncertainty, employment insecurity, more single person households and student debt. This is therefore likely to be a long term trend rather than just a reflection of the current housing and mortgage market.”
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