The cost of renting a new home in the UK has increased 4.7% over the last 12 months while tenants renewing their contract saw their rent increase 1.8%, new research shows.
It means that squeezed yields, particularly across London and the South East, have led to more landlords looking to buy rental properties with a tenant already in situ to preserve their return.
Indeed, the proportion of properties in the UK bought by landlords with a sitting tenant has reached the highest level since 2005, according to the latest report from Countrywide Residential Lettings.
Last year 11% of all rental properties bought by a landlord came with a sitting tenant, a fourfold increase on 2008. Landlords are increasingly recognising the value of keeping a reliable, long term tenant and are prepared to reward them with longer contracts, the report points out.
Tenants in properties sold as occupied have lived in their home significantly longer than the average tenant. A quarter of these tenants signed contracts of two years or longer compared to just 5% of tenants overall. This means for a growing number of renters, the decision to sell by their landlord does not affect their living conditions.
Across every region of the UK, the proportion of sales with a sitting tenant rose, with over quarter of all purchases by landlords in the Capital coming with a sitting tenant, up from 12% in 2008.
It is in London and the South East where yields are lowest and where the proportion of landlord purchases with a sitting tenant is highest. Here, landlords are most likely to buy a property with a sitting tenant to ensure they receive a rental income immediately, improving their return. This is achieved by landlords buying directly from other landlords who are selling up, rather than buying from an owner occupier and having to find a new tenant.
Between 2008 and 2014, the North East of England saw the largest uplift in landlords buying with a tenant already in place. Given the limited growth in house prices since 2008, landlords attach great importance to the yield they are able to achieve.
Selling with a sitting tenant allows a vendor to demonstrate the yield they are already achieving and means the new landlord will receive an income immediately in a market where it takes longer than average to get a tenant. Equally the new landlord won’t incur search costs or suffer any void period.
‘It seems that the secondary market of landlords selling investment properties to other landlords is growing. Landlords are increasingly recognising the long term value attached to keeping a reliable, high quality tenant,’ said David Fell, research analyst, Countrywide plc.
‘Properties sold with a tenant in situ, which offer a readymade guaranteed income, can even trade at a premium. At Countrywide, we are able to assist landlords in their quest to find a landlord looking to purchase a property with tenants in situ, as we have access to thousands of landlords throughout the UK,’ he explained.
‘Buying a home with a sitting tenant makes sense for a lot of landlords. Having a good tenant already in place can be attractive to the purchasing landlord and means there is rent coming in from day one. It also allows the landlord to avoid the costs associated with finding a tenant straight after buying,’ he added.