Yolande Barnes, head of residential research, says that rather than looking at bricks and mortar as a capital asset and relying on house price growth to fuel a profit, buyers are now happy to derive an income from rents.
“When we first started to look at residential property as an investable asset class 25 years ago, it was deeply unfashionable.
“There was only a tiny, vestigial market rented sector left in the UK, following regulation-induced asset disposal by investing institutions,” she says.
At that time, Margaret Thatcher wanted everyone in Britain to own their own home and renting became less common.
This trend began to reverse at the millennium, so in future it might come to be viewed only as a late twentieth century phenomenon.
“Post credit-crunch a new form of mortgage rationing, forgotten since the 1970s, has re-emerged.
“The imposition of very low loan-to-value ratios and stringent qualification of applicants has created a major barrier to housing accessibility,” says Yolande.
“The cost of deposits has overtaken the cost of debt repayments as the issue determining affordability.
“The subsequent growth in the number of market-rented properties over the last five years has reminded us that the new property world is dominated by cash and not borrowing.”
But tying up cash in an asset like housing is only worthwhile if it produces a return greater than that available elsewhere and at equal or lower risk.
For most owner-occupiers and private investors, there are very few alternative investments that are genuinely “as safe as houses” or as high yielding, according to Savills.
Demand for private rental accommodation is not only expanding but becoming more long-term.
Joint research with Rightmove shows average gross income yield now stands at 5.8 per cent nationally and yields are much higher on smaller properties, where owner-occupier demand has been hardest hit by the squeeze on mortgage lending.
Income yields on one-bedroom properties average 6.7 per cent. After accounting for costs and void periods, the average net yield for typical private landlords comes in at around 4.1 per cent.
Ultimately, say Savills, as the residential rental market gains in significance as an income-generating asset class, it’s likely that investors will move away from their historical focus on a property’s capital value and will concentrate increasingly on the income stream as a measure of value, just as they do with other income-producing assets such as bonds and commercial property.
Ben Pridden, head of residential at Savills in York, says: “The one sector to have thrived throughout the credit crunch has been private rentals.
“The shift to private renting has accelerated, thanks to constrained mortgage finance and the significant deposit hurdle for would-be home buyers. In fact, rapidly rising demand will require rental stock to be delivered by the new build market.”
More from the Report:
Savills five-year forecast predicts that prices in the north will hover between one and two per cent below their 2007 peak until 2016 when they will rise three per cent above it.
Ben Pridden says: “The mainstream market shows negative growth forecast over the next five years in Yorkshire.
“Certainly, there are some areas where selling houses, particularly those with problems of one kind or another, is very tough.
“Two markets that seem to be more resilient than most are York and the prime area to the north of city. In recent months some houses in York have surpassed prices not seen since the top of the market.”
Stamp duty rates for higher value properties have been on the rise since 1997. Receipts from housing rose by 670 per cent in the 10 years to 2007/08, while house prices increased by just 180 per cent.
Renters may think of it as “dead money” but it may be cheaper than buying if they take the cost of repairs and maintenance into account. If you do this, say Savills, the balance tips in favour of renting, with home ownership costing £1,300 more than renting over the course of a year.
The increase in tenant demand in the UK has been dramatic: over the five years to the end of 2011, the total value of housing in the private rental sector was up 42 per cent, while the number of households renting privately had leapt almost 50 per cent, from 3.4 to 4.8 million. And the trend is set to continue: by 2016 Savills estimate that figure will have risen to 5.9 million.
In Oxford, average rent on a two-bedroom property amounts to 57 per cent of average income.