Anton Frost of Carter Jonas reflects on the 2016 lettings market and looks ahead to 2017
PUBLISHED: 07:00 06 January 2017
2016 will be forever defined as a seminal year for the lettings industry and, with its buoyant market, Cambridge has been at the forefront of this change.
There has been an ostensible synergy between the opportunities that emerged for landlords and tenants, but also a tangible evolution among investors as they assessed the viability of their purchase.
The first milestone of the year was the implementation of the Stamp Duty Land Tax levies on second homes and investment properties at the end of March. This led to an onslaught of landlords rushing to complete on their investment purchases to avoid the three per cent levies that came into place on April 1. As a result, the Cambridge sales team experienced particular demand from investors in the first quarter, whereas typically we would have expected an even spread of investment purchases throughout the course of the year.
With a flurry of new investment properties reaching the market in April/May, our tenants had more choice than normal, but that abundance of options diminished as the summer progressed, creating greater competition for tenancies, which ultimately drove up rents in Cambridge.
Since then, there has been a restoration in the supply of rental properties, as we took on 26 new instructions in November and 15 in December – so our stock levels were replenished as we approached 2017.
Our tenant base has become more cosmopolitan in the last five years, thanks to the emergence of Cambridge as a major employer across the technology, science and innovation sectors, which attract talent from across the globe. That trend was further highlighted this year as new statistics reported that 70 per cent of our renters in Cambridge are foreign nationals, many of whom work at the Science Park, as well as Addenbrooke’s Hospital and the various universities and educational institutions.
To that end, we have been inundated with requests for two and three-bedroom apartments and townhouses throughout the course of 2016. Tenants want generously proportioned but manageable homes in a central location, and such demand has seen average rents for this type of property increase from £1,322 in 2015 to £1,400 in 2016, indicating steady and sustainable rental growth.
However, it has proved critical that we maintain a breadth of properties across our lettings portfolio, as we have had a consistent stream of enquiries for homes from across the spectrum, from studio apartments to six-bedroom houses set in acres of land.
Rental yields have been difficult to pinpoint this year, and that has been the catalyst for a fundamental shift in the mindset of Cambridge landlords and how they evaluate the viability of a rental property. For those buying in cash or playing the long game and investing for the next five to 10 years, there are the benefits of both capital growth opportunities and an increase in yields as the loan to value mortgage repayments reduce.
However, for those looking to make a yield of five per cent or over, our advice is to look nowhere other than at new build. In the north of the city, in walking distance of the new railway station at Chesterton, investors can achieve a five per cent-plus yield on new build, one and two-bedroom properties priced up to £400,000.
We always receive high demand for new build flats from our tenant base and such properties tend to let easily, bypassing the risk of void periods.
To date, Cambridge has benefited from operating in its own microclimate, immune from the impact of political milestones and legislation, such as the vote in favour of Brexit that rocked the market in neighbouring London. We are fortunate that the local planning authority had the foresight to unlock development sites, which allowed more of our residents to get on to the property ladder, creating sustained momentum in Cambridge across all price points.
Landlords benefited too, as the increased supply of properties facilitated further opportunities for them to grow their portfolios.
Looking ahead to 2017, there is some uncertainty surrounding the Chancellor’s decision to ban letting agency fees. While this could cost landlords in the short term, it is likely to be regained through a sharp increase in rents each month.
We understand that Article 50 is expected to be triggered in the first half of the year, but have confidence in our Prime Minister, Theresa May, and the governor of the Bank of England, Mark Carney, to insulate us against any ramifications. Ultimately, unemployment remains at a record low, which provides a buffer against the burst of a property bubble.
It is testament to the strength of the Cambridge lettings market that we approach 2017 with great prospects and growth opportunities for the new year, and welcome any new clients to contact us for advice and guidance as they navigate the year ahead.