Rental incomes are starting to slow down, so should landlords be worried?

A while ago I wrote about how rents for residential letting properties were at record high levels and still rising. This was due to a rapid rise in demand for rental properties caused in part by a growing population looking for housing, but mostly due to a large number of people looking for rental properties because the credit crunch meant that they were unable to obtain mortgages. People who would normally be first time buyers were unable to find their first step on the property ladder due to the tighter lending criteria that followed the credit crunch. The main problem being the requirement for a much larger deposit, which most people looking to buy their first property simply could not come up with.

Since buying was no longer an option for many people looking for their first home, this led to a huge increase in demand for rental properties. This in turn meant that there was a shortage of rental property that led to a sharp rise in rents being charged.

It is now being reported that the growth in rental prices is starting to slow down

The high rents being charged have attracted a lot more landlords and property investors into the market. Therefore the supply of rental properties has been increased to help meet demand, starting to ease the pressure caused by a large shortage of properties and this increased competition amongst landlords will slow down the rise in rental charges.

Furthermore mortgage providers are starting to relax their lending criteria meaning that some people who have been unable to secure a mortgage are now able to. These people may therefore give up their rental property in order to buy a home and get on the property ladder. In addition more people who are looking for their first home are able to opt to buy rather than rent.

In addition to mortgage providers starting to relax their lending criteria, the Government’s ‘Help to Buy Scheme’ has also proved very popular, helping first time buyers to get on the property ladder by helping with their deposit. This has therefore increased the number of homeowners and decreased the number looking for rental accommodation.

Rental income growth has slowed down for a variety of reasons

These are mainly due to mortgages for first time buyers becoming more easily obtained. In addition the help to buy scheme is helpful in assisting people to buy a home, who otherwise may have been unable to. Finally, the high rents being charged have meant more properties being acquired by landlords for rental purposes and therefore helping to meet demand.

So should landlords be worried and are buy to lets no longer such a great option for investors?

Rents have been high, and are still increasing, although at a slower rate. Remember mortgage criteria, although relaxed a bit, is still much stricter than it was. Plus MMR is now very much with us and this is making it more difficult to obtain mortgages. Then finally, despite the recent growth in property development, there is still a housing shortage as we are not building anywhere near enough new properties.

With low interest rates buy to lets are still an excellent investment. In addition the buy to let mortgage providers are becoming increasingly competitive so there are an increasing number of good deals to be found. Then of course since it is now easier to buy properties, in particular for first time buyers, this has helped property prices to increase, resulting in a sharp and strong rise in property values. This is clearly a major benefit to people who have invested in rental properties.