Landlords to receive a further boost as tenant finances set to improve

Landlords to receive a further boost as tenant finances set to improve

For those investing in the buy-to-let sector, although yields across the country have been fantastic in recent years, remaining above levels of six per cent since the sector really started to pick up pace in 2011, there are always concerns that exist.

For example, the financial crisis in the UK did not only hit house prices, but also the family purse, leaving people across the country with less money than they had in the past, which meant that the amount of severe arrears (more than two months) that landlords were facing were increasing all the time.

However, the good news for landlords is that the continued strength of the economy - which is expected to rise 2.7 per cent this year - and the fact the unemployment rate moves steadily towards the seven per cent level targetted by the Bank of England, means that tenant finances are improving all the time.

Earlier this month (April 4th), it was reported by LSL Property Services that there had been a 13.5 per cent reduction in severe arrears over the course of the last year, and according to the latest figures, this could be a reality that is set to continue across the rest of 2014.

LSL Property Services has predicted that this year, we will at last see the 'historic' crossover in which the levels of income for households rises faster than the cost of renting a property.

Last year, it said, the average wage climbed by 1.1 per cent, while rental prices rose by 1.6 per cent in the same period. However, by July this year, and perhaps even as early as next month, the company said that this trend should be reversed for the first time since the financial crisis.

It seems that 2013 was the indicator of things to come, with the gap between the two lower than it had been in recent times. In 2012, rents were up by 3.2 per cent, while wages rose by just 1.3 per cent. 

"Today we are in a very different situation. The private rented sector is now powered by waves of investment from landlords and a rejuvenated financial system. Meanwhile every sector of the economy, including construction, appears to be creating jobs," said David Brown, commercial director of LSL Property Services. 

For the whole of 2014, it is expected that rents will climb by some 1.7 per cent, but this will be outpaced by the rate of growth of wages, which are predicted to go up by 2.2 per cent across the year. 

So what does this mean for landlords? It's good news, of that there can be little doubt at all. 

The fact that households will have more disposable income means that there is far less chance of them actually ending up in arrears and owing money to their landlord, which means buy-to-let landlords making far better returns from their properties than they might have done in recent years. 

And of course, as wage rises continue to make households ever more confident, there will be a lot of people looking to move to bigger and better homes, keeping the demand for buy-to-let properties high and giving landlords fewer void periods.