Are Rental Indices the Perfect Tool for Investors and Landlords?

Owning a rental property is a good way to generate extra income. The number of landlords has grown as people, for example, use property to fund a pension, or because they have become accidental landlords. As with every method of earning income it is important that you understand the current investment situation. For example, whether house prices and rental prices are increasing within the area you invest within. It is often those that do not understand these factors and do not track them that fail to understand changes that affect them. One way of monitoring changes in rents is to use a Rental Index. There are many house price indices, but few Rental Indices. This article will focus on rental indices as a tool and highlight the latest official source of rental information.

Are Rental Indices the Perfect Tool for Investors and Landlords?
K&G Lettings Limited Rental Indices the Perfect Tool for Investors and Landlords

As a landlord or investor it is important you understand the market you are investing in. It is also essential to learn what is happening to the rents since it is a major factor in the performance of your investment. A convenient way of doing this is to make use of rental indices that tracks the changes in rents over time. There is already good information on rents for the public sector, published for each local authority as their Local Housing Allowance rates. The information on private rents has recently improved considerably, with the government introducing its Index of Private Housing Rental Prices (IPHRP).

The IPHRP is comprised of different price indices, which track the changes of the price charged to rent a private house. The IPHRP provides indices for Great Britain, England, Wales and Scotland, and the 9 English regions. IPHRP is released as an experimental statistic. This translates into the fact that it is currently being developed with the methods being evaluated. This should be considered when drawing conclusions. However, it is one of the most comprehensive of the rental indices available and is accessible for free.

The IPHRP show that private rental prices increased in 8 out of 9 English regions between May of 2012 to May of 2013. Yorkshire saw a 0.7% rental increase, below the England average of 1.3% – see chart at the beinning of the article. The Indices should be used as a starting point to understand your market, rather than the definitive rental figure as they do not provide information for local areas.

Rental indices provide a useful sign of what is happening in the wider market, down to the level of the region. But yet, it is important to ensure that as an investor or landlord you are aware of what’s happening in the area local to your investment. Rental indices are helpful, but should never replace your local knowledge, whether built up yourself, or accessed through a firm local to your area.