Declining tenant demand fails to dampen landlord optimism

The quarterly BM Solutions/BDRC Landlords Panel1 found that confidence in rental yields saw the biggest increase over the last quarter, up 5% to 52%. Prospects for landlords’ own letting businesses also grew by 3% to 41% and were on a par with a year ago.

However, the remaining three confidence key indicators either fell or remained static over the last quarter, with confidence in the UK’s financial markets down 11% year on year. Confidence for capital gains also fell by 4% over the same period.

Tenant demand

Overall perceptions of tenant demand has continued to decline, with only three regions – Scotland, the East of England and Outer London – reporting an increase in demand from Q4 2017. The remaining nine regions saw lower tenant demand compared to the end of 2017, with just one in 10 landlords in Central London now reporting an increase.

Rental yields

Rental yields in Q1 dipped slightly to 5.8% (from 5.9% in Q4) with landlords in the North West once again generating the highest rental yield of 6.7%, closely followed by the West Midlands (6.6%) and the East Midlands (6.2%). Rental yields were lowest in Central and Outer London at 4.8% and 5.2% respectively.

The research also found that fewer landlords are increasing rents across their own portfolios – down 9% over the last six months, to 30%. More than half (60%) of landlords also say they are renting some or all of their properties at below market rent and subsidising rental by an average of £82 per month, rising to £128 in Central London.

Phil Rickards, Head of BM Solutions, said: “After the new underwriting standards came in at the back end of last year, it’s encouraging to see landlords starting 2018 on a more optimistic note particularly around their own business and rental yields.

While overall confidence in the UK’s financial markets is 11% lower than a year ago and we’re still working through a period of landmark changes in the industry, there are clear signs of good health, as more than eight out of 10 landlords are telling us they are making a good profit from their business.”