The September Survey of Buy to Let Trends in the Private Rented Sector shows capital appreciation is no longer the prime factor influencing buying and selling decisions in the buy to let sector. It is now the rental return that carries the most weight in the decision- making process.
The Paragon PICT Index, the Property Investor Confidence Tracking Index, is still included in the new Survey of Buy to Let Trends and this Index shows a decline from 108.8 to 104.4 over the Summer quarter. The Index stood at 112.1 a year ago.
Although gross rental returns on buy to let property have fallen from 9.6% to 8.9% over the last quarter, expectations of higher rents are growing. This now shows rental returns as the most dominant factor lying behind buy to let decisions for three quarters (75.2%) of all investor landlords, against 69.6% three months ago. The change is entirely at the expense of capital appreciation as the prime influence behind buying and selling buy to let property.
“We appear to be seeing an appreciation of the traditional contra-cyclical nature of buy to let investment and the rental market in general,” said John Heron, managing director of Paragon Mortgages. “Investor landlords operating in the market are sensing a change from a period of high capital appreciation to a cycle of strong rental demand.”
Although the new survey shows the average size of property portfolios is down from 9.9 to nine properties, investor landlords still expect to increase their holdings by 16% over the next twelve months. However, the market value of their portfolios has declined by 3.7%, from £642,300 to £618,800, while average gearing has reduced from 48% to 43%. Although the survey shows landlords forecasting a 16% growth in the numbers of properties, values are expected to rise by only 8.1%. These expectations could be evidence that Buy to Let landlords expect house price adjustments or that they intend to restructure their portfolios to include lower value properties.
The survey shows that with types of rental properties split evenly between flats (45%) and terraced houses (44%), the average gross rental rate of return has fallen from 9.6% to 8.9%. The average empty period between tenancies is 18 days and the average aggregate void period over a year is 20 days. On average, landlords have to show three prospective tenants around a property before it is let.
