The number of private rented households in England and Wales will increase by more than 1.2m over the next five years, so that by the end of 2019 more than 24% of all households across the UK will be in the private rented sector.
This forecasted change, based on Savills’ research, will fundamentally alter the way we look at UK housing and the role of home ownership, presenting many opportunities for investors in the auction room.
Top considerations for vendors and bidders at auction will be where the UK will see the biggest change as a result of this trend, the predicted effect on residential property auctions, which lots will fare well as a result, and what buyers should be looking out for.
Private renting will see its biggest increase in the capital, where 250,000 more London households are forecast to be living in private rented accommodation by 2019. This takes the total number to 1.24m, well over a third (36%) of all households.
For investors looking to make the most of this increase, convenience is key for London tenants. Properties in good areas of London, close to local amenities, outdoor space and transport links, are highly sought after.
Encouragingly for landlords, once tenants have secured a property they are happy with they are increasingly renting for longer -periods.
With such substantial growth predicted for the private rented sector, we expect to see an upswing of investors looking to make the most of this in the auction room. Although a high concentration of these renters will be in London, average prices here are already 30% above their 2007 peak. We expect the commuter belt and neighbouring regions to attract substantial interest from investors keen to see greater capital growth. Savills’ five-year forecast predicts the best returns will be found in the South East, where house prices are expected to see the greatest increase by 2019 at 26%, followed by the East of England at 25%.
Oven-ready investments, such as those with assured shorthold tenancies in place, are already an auction favourite for aspiring and existing buy-to-let landlords. The benefits of buying a property with an existing tenant include guaranteed rental income from the outset. Rental yields depend on where the property is and how much is paid for it. As a rule, higher-yielding properties are typically at the lower end of the housing market: as rents increase the number of potential tenants narrow and yields begin to fall away. Ex-council properties can achieve between 8-11%, while average rental yields fall between 5-7%.
Looking at the demographics of the private rented sector, the number of 35- to 49-year-olds in private rented accommodation almost doubled between 2001 and 2011. Savills predicts there will be more than 2m private rented households in this age group by 2019. Taking this into consideration, my top tip for auction buyers would be to pay particular attention to houses. Many tenants in this age group will be renting with children, meaning a house with a garden will often be preferable to a flat. Houses also look set to outperform flats in capital gains. With new developments predominately focused on flats and block building, the proportion of houses on the market is decreasing, driving up their value.
Election-year caution has begun to creep in, slowing down the private treaty residential property market. This lethargy can work in favour of the auction market, where constant buyer demand will maintain good stock levels to which buyers and vendors can turn.
For homes going under the hammer, realistic pricing will be crucial to achieving interest and competition. For vendors, the auction room will continue to offer a cosmopolitan cross section of buyers, both nationally and internationally, with a successful auction resulting in a sale on the day, quicker than even the most active residential market.
Chris Coleman-Smith is head of Savills Auctions
