Tenant demand continues to be strong in the private rented sector (PRS), with over a third of landlords currently experiencing growing demand for their property. Landlords expect this level of demand to continue over the coming 12 months, with four out of ten landlords predicting that tenant demand will be higher than current levels.
The majority of landlords in the PRS are highly experienced, with over two thirds (66.5%) having been a landlord for 11 or more years. On average, residential landlords’ portfolios consist of 13.2 properties, with the average portfolio worth £1.52m. The average level of borrowing across a landlord’s portfolio is less than 50% of the portfolio’s value.
Flats, apartments and maisonettes comprise 43% of the average portfolio, with terraced property being the next most popular property type (38%). Semi-detached property accounts for 11%, followed by detached houses at 3%.
From October 2008 it became a legal requirement for landlords to make an Energy Performance Certificate available to prospective tenants when marketing a property for rent. It is expected that landlords will obtain their EPCs when a new tenant is required and this is borne out by the research. During the third quarter, 81.3% of landlords said that they had not obtained EPCs for any of their properties.
However, the fourth quarter survey shows this had dropped to 45.6%. In addition, 12% of landlords said that they had obtained EPCs for their entire portfolio during the fourth quarter, compared to 5.2% during the third. Whilst this shows an improvement in compliance, it underlines the need for a sustained communication campaign by Government.
Strong tenant demand
Over a third of landlords (33.5%) state that tenant demand is currently growing as more people opt for rented accommodation, with 45% believing that tenant demand is stable. Looking forward, four out of 10 landlords are predicting that tenant demand will be above current levels in 12 months’ time, while a similar number (41%) believe current levels will be unchanged in a year’s time.
The high level of tenant demand is reflected in low void periods, which stood at 2.75 weeks a year in the fourth quarter. Void periods have generally been in decline since the third quarter of 2006 when they peaked at 3.1 weeks a year.
Almost seven out of 10 of respondents’ tenants (69%) are made up of people who are either single professionals, families or couples. Students account for 15% of tenancies, followed by house sharers (6.3%) and immigrants (3.5%).
Rising rates of return
The average yield across a landlord’s portfolio currently stands at 6.1%, although nearly a third of respondents (32%) are obtaining yields above this level. This yield level has been rising steadily over the year, up from the 5.7% recorded during the first quarter of 2008. Looking forward, landlords believe the yield across their portfolio will have risen to 6.3% in 12 months’ time as a result of stagnant house prices and rising rent levels.