Asking rents in the UK increased by 3% annually outside London in 2016 with the highest growth recorded in northern regions, the latest index shows.
However, rents in London fell 4.4% with inner London seeing the biggest decline in the fourth quarter of 2016, according to the data from real estate portal Rightmove.
In 2017 Rightmove forecasts asking rent rises of 4% outside London, driven by less availability of rental stock resulting in upwards price pressure for tenants.
With margins under pressure due to imminent tax changes, it suggests that buy to let investors could look to towns in Merseyside and Lancashire which dominate the best yields currently on offer.
Outside of London the average asking rent was £771 per month, down slightly by 1.1% from the previous quarter while in Greater London it was £1,908 per month in December, down 3.9% quarter on quarter.
All regions except London recorded a rise in asking rents in 2016, led by Yorkshire and the Humber up 4.5% and the North West up 4.4%, overtaking the East of England that had been the best performing region until the final quarter of the year.
In London, more available rental stock throughout the year led to a 4.4% annual drop in prices across the capital. In Inner London rents fell by 5.2% while there was a smaller drop of 2.5% in Outer London.
In Scotland asking rents are up 1.4% year on year to an average of £635 per month but this was some 4.7% down on the third quarter of 2016. In Wales rents were up just 0.7% year on year to £654 but quarter on quarter they increased by 6.5%.
‘This year will be one of caution for buy to let investors due to tighter lending criteria and increased stamp duty. We definitely won’t see the spike in the first quarter purchases that we saw last year as landlords rushed to buy before last April’s new stamp duty deadline,’ said Rightmove’s head of lettings Sam Mitchell.
‘If the tax changes being phased in from this April lead to even fewer buy to let purchases and some landlords deciding to sell, then a tightening of supply in some areas will lead to increasing rents. We forecast that asking rents could rise by 4% outside London by the end of 2017, though in London prices are likely to stay flat,’ he added.
The top five areas with the highest rental growth in 2016 were scattered with Swansea at number one reporting an 11.4% annual increase, followed by Gillingham in Kent with asking rents up 11.1%. Bath, which comes in third with a 10.5% increase to £1,148 per month is the location that reported the highest annual growth for asking prices in 2016, up 17.8% to £485,491.
The top locations for demand from tenants on Rightmove is dominated by the north, including Ashton-Under-Lyne and Oldham in Greater Manchester, and Stockport in Cheshire. In London, more affordable areas such as Rainham, Bexleyheath and Erith came top as tenants looked for better value in outer London.
Mitchell pointed out that buy to let investors planning to expand their portfolio in 2017 and looking for the best yields could consider places in Merseyside and Lancashire where they could get yields of over 7% if they buy the right property that would suit families or young professionals looking for long term rental contracts.
Bootle in Merseyside currently offers a yield of 9.3%, Birkenhead is 7.5% and in Lancashire Burnley’s yield is 7.2% while Accrington is 7.1%.
‘Investors looking for the strongest yields could consider investing in certain areas in the North West where both demand and yields are high. Those with a number of properties in the capital may find that tenants are more price sensitive, so setting realistic rent levels will be the key to avoiding void periods,’ said Mitchell.
‘In order to mitigate this, we would recommend landlords asking for longer tenancies to help secure a steady rental income over the next few years while they adjust to what the tax changes will mean for them,’ he added.