Friday, September 17, 2010

Where’s our bailout?

Rents rise as supply and demand favours landlords

Tenants are facing steep increases in rents as landlords push prices back to levels not seen since the start of the economic slowdown, according to the LSL monthly index of buy-to-let rents. The worst increases are in the south-east where, according to LSL, in just one month alone landlords have pushed up rents by 2.8% – far outstripping wages. London also saw a 2% rise during August, with the average charged now standing at £961 a month. Over the year, the Yorkshire and Humberside region has suffered the biggest annual rise, up by 5.4% to an average of £528.

Posted by little professor @ 09:01 AM (1870 views)
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31 thoughts on “Where’s our bailout?

  • little professor says:

    Interesting choice of language used in the article – referring to the “worst increase” and “suffered the biggest annual rise” – when will we see such language being used about house price rises? Or is that always a good thing.

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  • tyrellcorporation says:

    People will simply not fly-the-nest.

    Great stuff. Labour have given us a return to Victorian Britain where multiple generations will have to squeeze into one house to grow up in, to retire to, to work in and to raise new families. Welcome to Bedlam.

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  • This is a genuine worry.

    Not sure why there is an increased demand for rental property.

    Can’t imagine there’s a current huge influx of people at the moment.

    Maybe it’s ‘accidental’ landlords selling up the rental property and reducing supply.

    Could it be a series of articles in BTL publications claiming rent rises that has made landlords give rent increases a go, which in turn has produced higher rents ?

    Maybe now people who missed the first chance to STR are now doing so.

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  • 1. little professor

    Well spotted.

    Perhaps the factor of social impact will only sink in when insurance companies have to start paying out on damages.

    Something will have to give.

    “When people lose everything and there’s nothing left to lose, they lose it.” (Bronx accent)

    – Gerald Celente.

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  • tyrellcorporation says:

    Well I’ve definately noticed this phenomenon in Exeter. A 4 bed house has been about £1000 a month for the last 5 years. In the past 8 months the going rate has jumped to £1300-£1400 a month!

    Hence one of the reasons I’m buying. The rent for my 4 bed is £975 p/m and I’m living on borrowed time really. A jump to £1300 would mean myself and my family would have to squeeze in with my mother-in-law – She’d be under the patio within 4 weeks and I’d be looking at doing some serious porridge!

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  • sibley's b'stard child says:

    Increase in rents – boo hiss!

    Increase in mortgage – hurrah!

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  • These £1300-£1400 rents in Exeter are all on housing benefit, right?
    Hardly any jobs in Exeter would allow for that kind of rent – drug dealers and prostitutes excepted.

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  • Hmmm.. think I’ll let my shed out for £750pcm.

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  • mark wadsworth says:

    Chaps, do not panic!

    I have been looking at housing market statistics for decades (in this country and abroad) and there is a long run very fixed correlation between rents and wages. As others have pointed out, HP increases over the past 15 years had nothing to do with lack of supply (which is not to excuse NIMBYism, that’s a separate topic) it has overwhelmingly to do with low interest rates*, lax lending and a self-fulfilling bubble, i.e. house prices may have trebled, but rents went up by 50% or something in nominal terms, in line with wage increases.

    Rents are the Maypole around which property prices dance.

    We tenants have had a very good few years, maybe rents will catch up a bit, but there will not be a ‘bubble’ in rents or anything, the market is far too liquid for that. And fair’s fair – if young people are no longer buying, they are all renting instead – provided the value of the house in which you live falls by more than the rent you pay every year, you are still ahead of the game (we pay an outrageous amount of rent – nearly as much as the Tories’ proposed HB cap and the value of the house in which we live has fallen by at least twice that amount every year).

    * And yes, we have looked at correlation between nominal interest rates and house price changes, and the correlation is nowhere near as high as you would expect.

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  • i feel for people in this position i really do. however LLs with EXISTING tenants, should think very very carefully before ditching them in favour of someone new. For LLs where the tenant leaves then the LL should look to maximise for 2 reasons. first it makes business sense – why should he try to make the rent lower? second he has no idea as to how and if the tenant will honour his obligations.

    existing tenants (perhaps that have been there for say a year or more) should be valued for the 2nd reason. Its all very well saying you will get a few quid more a month, but surely its better the devil you know, then someone new that might do a runner after say a couple of months. of course the higher the differential the more it makes sense to do this.

    so how long will this squeeze last? will if this is just because of accidental LLs selling up, then unless we have higher IRs then i can see more accidental LLs coming back, a they just cant sell their properties and have missed the boat to get our during the bounce… i.e. they have held on for “the correct price” as they think we are “returning to normal”.

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  • Hang on a minute, something doesn’t add up here. Rents have risen, but also “around 507,000 in the UK are now behind with payments, up 70,000 on the month alone”. Arrears are rising much faster than rents. Therefore these rent rises are clearly unsustainable.

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  • Interesting comment below the article:

    “This is due to changes coming up in housing benefit/local housing allowance. The new basis for rent will be the 30% level. So landlords are increasing their rents charged so that the 30% level will soon be the same as the current median. The law of unintended consequences.”

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  • sibley's b'stard child says:

    My thoughts exactly Drewster; stupid b’stards can’t see the correlation between higher rents and increased arrears.

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  • High rents are liable to make tenants consider buying, which as house prices drop, will become more affordable/attractive. The higher the rent the higher the tenant churn, in this way rents may overshoot norms but not for long before returning to a long term average – as techie & mark say the market is so liquid and the long term relation of rents to average wages are very strong.

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  • Oliver Cromwell realised the plight of the masses in this country against the wealthy elite. He created our Government to allow fair treatment for all people. It seems that modern Government has forgotten this.

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  • Indeed, what we may be seeing in rent rises is a reaction to proposed cuts in housing benefits – making hay while the sunshines as it were.

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  • I used to pay £600 a month for a small house in SW London about 15 years ago when the housing market was in the doldrums. The house was then worth about £85,000. I reckon the house has gone up by about 4x since then and the rent has probably doubled. So the owner has made a killing whichever way you look at it.

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  • LSL Property Services plc – ‘provide a broad range of services to its customers who a principally mortgage lenders’. (from their website)

    VI spin, maybe.

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  • there are many many new landlords/ladies who entered the market at the peak either by mistake or through get rich quick ideas, these people are most likely losing money each month, increase rents and hey presto it shows a profit to the bank who are probably taking a closer look at the lending the made on BTL, this pressure is possibly a good thing as it will put pressure on wages etc, thus pushing the idea of higher interest rates back onto the agenda rather than sitting under Mervs fat stupid a&se.

    Another thing I have noticed is a lot of properties for sale with tenants claiming to be a good investment, EG £275k with a tenant paying 600 a month on AST, yeh thats looks like a viable investment.. rightmove is full of them.

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  • Drewster, comment 9, well spotted. That supports my original contention. And take it from an ex-landlord, if you have a tenant in who is paying regularly, do not under any circumstances try and force through a rent increase, just leave well alone.

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  • Could this not be due to BTLs putting their houses on the market like just after the last peak?

    Hopefully, like last time, they’ll be forced to rent them out again when they don’t sell.

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  • Don’t forget mark, they want wage increases as it’s the only type of inflation that will eat debt. If we get it I doubt they’ll styfel it with an interest rate rise. Not until it’s out of control anyway.

    Those in power will be on final salary pensions, they’d love an overdose of wage inflation.

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  • str2007 so Mervyn will be eating more donuts to keep his lardy ar&e on the rates agenda then

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  • I don’t buy it. You could be forgiven for thinking that they are trying to rally the market against a drop in rents. Cough *LHA Rent Cut* cough cough.

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  • will @ 16,

    Not just spin, these figures are borne out from what I’ve heard from friends and from looking around my neighbourhood.

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  • The rental yield for my landlord is 3.4%, less than the stamp duty and costs he paid to buy the place, and less than inflation. I’ve been there 3 years and the roof has needed mending, the boiler replacing, the carpets replaced. This year he will have to change the old curtains and repair one of the bathrooms.

    Looking at asking prices around me they are a lot higher, but then why would the landlord risk a void period and a tenant that might not pay like clockwork by asking for an increase. He hasn’t.

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  • ontheotherhand

    wow you have a good landlord, does he change the lightbulbs too?

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  • I was speaking to a couple of people who run property portfolios (25 year plus involvement) yesterday and one guy mentioned to me in passing that 2010 has been his strangest year ever for high turnover of tennants and rental defaults – he has spent most of his time recently issuing default notices and chasing guarantors and there are one or two he simply cant find ! He has increased rents by approximately £3 per week from last year. Hope this helps give a bit of a balance on things.

    @techieman – Off topic – did you listen to Christian yesterday? – “we are repeating the 1930’s crash” with UK talking of banning/curbing short selling with big move to the downside anticipated – 9 minutes of commentary plus 1929 stock market crsh chart.

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  • “Rising rents are pushing tenants into arrears” Yes, and I’m a 2-grand-a-day man who is currently unemployed.

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  • the number cruncher says:

    My landlord has not asked fro a rent increase, this year, yet…

    Similar properties are on the market for 20% more than I am paying at the moment so I am a bit worried. Most of the rentals in my area are showing a 20% increase more than 18 months ago.

    My village has a lot of ex-rentals on the market at the moment from idiot BTL & Do Upers who have been burned. A few of these are standing empty, hoping for a sale at the same advertised price they where 2 years ago before they where taken off the market and rented out.

    Its all well and good to think this is a temporary blip but this will not put a roof over Mrs & Master TNC if we have to find a new property. 🙁

    On the good side we are very good tenants and my landlord will be foreclosed on very quickly as he does not earn a lot of money, so cannot afford long viod periods. Its a risk/greed calculation.

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  • greenshootsandleaves says:

    Similar piece in the dailymail includes the following:

    “David Newnes, estate agency managing director of LSL Property Services, said: ‘Rents are jumping up as more and more potential home buyers opt to rent.”

    So, tenants who are staying put (i.e. not buying) are pushing rents up. That’s all right, as long as by not buying they’re not bringing prices down.

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