Here is the latest edition of the Property Options’ monthly update on the UK Buy To Let (BTL) market.
This update is by economist Chris Worthington, who was one of our regular PIM speakers.
The Economic Context
The latest quarterly economic outlook from the Bank of England warned households that living standards will fall this year.
Prices have risen faster than the Bank’s expectations in recent months. Inflation has increased to 2.3%, the highest level for more than three years. This is largely because the sharp drop in the pound since the EU referendum has made imports more expensive.
The Bank now expects inflation to be 2.7% this quarter, up from the previous forecast of 2.4%. Based on the consumer prices index (CPI) it will continue to rise further above the 2% target in the coming months peaking at a little below 3% in the fourth quarter.
At the same time the Bank has cut the forecast for average wages growth for this year to 2%, down from the 3% forecast in February.
Buy To Let Rents
In the long run, rents have consistently tracked earnings but what is unusual in the current economic climate is that earnings have not increased in line with the high level of job creation and the low level of unemployment.
For buy to let (BTL) investors the main impact of an increase in wages below the rate of inflation has been a slowdown in rental growth as rents have reached the limit of affordability for many tenants.
Research published by the Local Government Association found that 14% of tenants are spending more than half their total income on rent compared with 2% of homeowners spending that amount on their mortgage. The research also found that 43% of private tenants are spending more than 30% of their income on rent.
However the latest data on rents published by Hometrack shows that the average rent in the UK has been within the range of 27% – 32% of single person earnings since 2008.
There are regional variations, but the main exception to the average is London where rents have been in the range of 35% – 43% of single person earnings since 2008.
So is the problem of unaffordable rents concentrated in London? Without wishing to ignore the affordability of rents for tenants in other cities, the answer is a qualified “ yes” and that leads to other problems, such as long distance commuting to jobs in London.
Find Out More
We will all be discussing the latest position on the property market, both in Bristol and across the UK, at our next PIM on Thursday 28 September 2017 at Holiday Inn, Bristol City Centre, 6-9 pm.
We hope you will join us then.
For more info and to reserve your place Click Below