Remortgaging and confidence in property prices both rise
Last week’s investment news provides a mixed picture for property investors. Though rental prices have increased, the rise is smaller than general inflation. However, rental yields remain strong in most locations. And while the level of remortgaging may be evidence of struggling household budgets, the majority of consumers expect house prices to rise over the next 12 months.
Rental price rises remain subdued
The latest data release from the HomeLet Rental Index indicates that rental price inflation remains subdued, but has increased to 1.1% from February’s low of 0.8%. It is the first increase in the inflation rate since last June. Tenants now pay an average of £904 per month. In London, the average monthly rent is £1,546, and in the rest of the UK, it is £751.
Rents rose in all areas, except in Yorkshire and Humberside and the North West of England.
Though the rate of rental price inflation has increased, it still lags general inflation, which was recorded at 2.3% in March.
Rental yields remain strong in most towns and cities in the UK
You can earn around 1% on cash savings in the UK. Meanwhile, buy-to-let property yields remain strong across the country, despite recent dips in some rental prices.
The Northern Powerhouse is currently producing the highest average yields: Salford landlords benefit from 7.08% rental yield; a property in Leeds offers a rental yield of nearly 6% and Manchester 5.79%. The last few years of property price rises in London have not been reflected in rental yields. In the capital, the average yield is now just 3.45%.
Remortgaging rises strongly in March
Remortgaging accounted for a whopping 21% of all mortgage activity in March, according to research from Connells Survey and Valuation. It is an increase from 15% in March last year. The rise is probably due to homeowners seeking to offset the rising cost of inflation and may indicate that they are using the equity in their homes to pay off more expensive debt.
In a separate release, Connells said that the number of buy-to-let investors remortgaging their properties rose by 3%, as landlords attempt to recoup the loss of mortgage tax relief by fixing their mortgages at lower interest rates.
Confidence in the property market remains stable
Halifax released its latest consumer sentiment data, and said that post-EU Referendum confidence appears to have settled at a ‘new lower normal’.
The number of people who expect house prices to rise over the next year has increased marginally, with 58% now more confident about the future of house prices. However, nearly a third expect prices to rise by 5% or less, while 28% think the rise will be more than 5%. It reflects the slowing rate of house price growth that we had seen since the referendum last year.
What you can learn from last week’s investment news:
Analysing this investment news flow, we can come to the following conclusions:
- Perhaps we’ve turned the corner on low rental inflation. Rental price inflation had fallen every month since June 2016. Though rental increases of 1.1% are low, the uptick in March could indicate that landlords are starting to react to higher inflation and a tougher property tax regime in the UK.
- As landlords react to rising general inflation, we could see the gap between the two close. It could lead to higher rental yields across the UK. With affordability stretched in London, and yields in the rest of the country much stronger, investors should look to regional cities and commuter towns for property investment opportunities.
- Remortgaging activity could be a cause for concern, though may also be evidence that rental prices could continue to rise. If people are remortgaging to provide a buffer in their personal finances because of rising prices, the number of households who want to rent rather than buy is likely to rise.
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Brett Alegre-Wood
