Rents are rising at the fastest rate since 2017, pushing the average yield on residential property to its highest in two years.
The ninth edition of the Buy to Let Britain report, published today (July 12) by Kent Reliance for Intermediaries, found rents hit a record high at an average of £896 per calendar month in the first quarter of 2019.
The average yield stood at 4.5 per cent at the end of the quarter, the highest since the first quarter of 2017. In London, yields reached 4.1 per cent, a peak not seen since the end of 2015.
However, in spite of this, the private rented sector remained subdued on the back of government intervention and the economic impact of Brexit uncertainty.
In the past year, the value of the sector grew by a mere £6bn as the expansion of supply slowed and property prices weakened in several parts of the country, the report stated.
According to the report, the dwindling supply of properties within the sector was partly due to a fall in landlord confidence on the back of tax reforms and tighter lending rules.
Andy Golding, chief executive of OneSavings Bank, which trades under the Kent Reliance for Intermediaries and InterBay Commercial brands in buy to let, said: "Landlords have rolled with the punches as best they can, but there is no escaping that growth is subdued in the private rented sector following four years of government intervention.
"Brexit uncertainty has only compounded this issue, having the obvious knock-on-effect on landlords’ confidence.
"The positive news is that for those landlords looking to expand their portfolios, underlying market conditions seem to be changing. Yields are climbing as rents rise faster than house prices, providing further opportunities for committed investors."
He added: "Without some policy stability, there is the tangible risk that the supply of homes will contract, and rents will become less affordable.
"Rents are already rising, and will continue to do so as landlords come to terms with higher set up and running costs, on top of larger tax bills. Neither outcome suits tenants, nor helps with the ultimate issue of housing affordability."
A recent survey of 827 landlords carried out in association with BVA BDRC, found landlord confidence had dropped to the second-lowest level on record, limiting new investment into the sector.
The number of homes is estimated to have grown by 11,000 properties per year, a rise of 0.2 per cent with 5.4m properties currently in the private rented sector.
This contrasts starkly to 2015, prior to the tax reforms announced in the Summer Budget, when the sector was expanding at a rate of more than 3 per cent.
The number of mortgaged properties in the sector also mirrors the slowdown, as there were 1.9m outstanding buy to let loans at the end of Q1 2019, according to UK Finance data, up just 1.4 per cent on a year ago.
Buy to let investors have been subject to a number of regulatory changes in recent years, with the introduction of an additional 3 per cent stamp duty surcharge on second homes in April 2016, which was closely followed by cuts to mortgage interest tax relief.
Buy-to-let borrowers are also now subject to more stringent affordability testing under the Prudential Regulation Authority's tightened underwriting rules.
David Hollingworth, associate director of communications at L&C Mortgages, said: "These figures demonstrate how the buy to let market needs a period of policy stability, as landlords get to grips with uncertainty and recent changes to the market.
"That’s particularly true of the alterations to tax relief on mortgage interest, which continues to feed through into landlord tax bills and is identified as a contributor to higher costs feeding into rents for tenants.
"Despite the uncertainties we continue to see existing landlords holding onto their investment and remortgaging to take advantage of low mortgage rates.
"Additionally professionals will still be attracted by the rising yields, as shown by Kent Reliance’s figures on the specialist, limited company market."
