But a recent survey by Your Move, and letting agents network Reeds Rains, suggests that landlords expect rent inflation to tail off to 1.7 per cent by next year. Some of this deceleration - the survey was carried out before the general election - may reflect uncertainty about possible intervention to regulate rent rises. However, such moderation does fly in the face of the fact that demand for rented property is not going to go away. Around one in five of all households are now renting, and, unless there is a monumental increase in the number of new housing starts, this number is likely to increase. So any more restrictive measures run the risk of putting off potential landlords and putting upward pressure on rents.
But while over half of all landlords in the survey reckon that better capital returns than from other forms of investment make it a good time to buy rental properties, gaining the greatest yield comes some way down the pecking order. In fact, nearly two-thirds of landlords maintain that the most important factor when letting out a property is to have a tenant they can trust, followed by a quarter who reckon that the second most important factor is having tenants who pay on time. In fact, just 4 per cent of landlords put the greatest yield as the top priority. This may sound modest, but landlords are well served elsewhere; capital gains have played a significant part in building up the value of rental portfolios, and have also provided the seed capital to invest in further purchases.
Rental income security has also improved, thanks to an increase in disposable income enjoyed by tenants. In March this year 7.4 per cent of all rents were in arrears; that's down from 7.6 per cent a month earlier and 7.8 per cent a year ago. Looking back still further, the trend is even more pronounced. In May 2010, for example, rental arrears stood at 10.7 per cent, and reached a record high of 14.7 per cent in February that year.
Nearly a fifth of landlords have increased their portfolio in the past year, and a quarter expect to do so in the coming year. These numbers are an extension of a longstanding trend, and suggest that, despite all the recent incentives introduced to help first-time buyers on to the bottom rung of the property market, demand for rented properties will continue to rise. There may be two key underlying pillars to support this view. The first is that nearly all incentives either already installed or promised for first-time buyers address the affordability issue, while there has been precious little progress in boosting the supply of new homes, leaving many people working to set up their own nest with little option than to rent. The second reason is a change in social trends. Many young people are making a conscious lifestyle choice in deciding not to buy but to rent instead. In fact, in the first quarter of this year, buy-to-let lending grew 20 per cent year on year, easily outstripping the 1.6 per cent increase in residential lending.
Whatever the outcome of the election, landlords are pretty much in agreement that what the private rented sector does not need is more intervention. Regulation yes, to weed out the less than scrupulous operators, but suggestions that rent rises should be tied to inflation and that tenancy fees should be abolished would almost certainly lessen the attractions of buy-to-let and exacerbate the shortage of quality rental properties on the market. Not only that; if rents are tied to inflation for a three-year period, tenants could face an unpleasant and unpredictable rise when, after the three-year period, rents are uplifted to current market values.
