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9.1% Rental GrowthUK Average (Exc London)
11% Increase in RentsUK Average (Inc London)
£995 PCMUK Average Rent
Strongest Rental Market Growth
Earlier this year, rents across the UK inflated to £830. Rents have now climbed to £995, the highest rental market growth since the Global Financial Crisis. These numbers continue to rise, which is a delight for landlords and bad news for tenants. Across the UK, inflation intensifies. As a result, people are struggling to climb onto the property ladder. This is due to several factors, including the shortage of properties available to buy, combined with the elevated levels of housing demand.
'Rental Market Revolution'
This chronic housing shortage has driven the ‘rental market revolution’. Between Q1 2020 and Q1 2022, the UK’s Built-to-rent (BTR) sector has constructed 28,065 properties. In London alone, there are still 83,000 homes in the BTR pipeline. Although the number of properties built is 19% higher than pre-pandemic levels, the housing shortage is severe. According to Propertymark, the number of properties available to rent is 49% lower than in the previous two years.
As demand outstrips supply, competition in the market remains fierce. Therefore, tenants are in rental accommodation for longer as the hunt for their new property continues. To highlight, at the start of 2017, the average length of a tenancy agreement was 51 weeks, which has risen to 75 weeks. The current market conditions show that BTL investments are the most lucrative investment vehicle, with an increasing number of people looking to rent.
Demand Heightens in Rental Market
Levels of demand in the rental market continue to intensify. Consequently, these propelling rents are magnifying financial pressures for renters. In a report released by Zoopla, the average rent in the UK has rocketed to an astonishing £995, this takes the annual rental market growth rate to 11%. Furthermore, the graph shows that although rents in London have spiked by 15% this year, the growth is not sustainable. Analysing rental market trends over the decade, you can see that levels spike and plummet dramatically in the Capital. If you are looking for a not-so-risky investment, avoid investing in London. Let me explain why.
Firstly, property prices in London have peaked at an extortionate £712,707! To highlight the sheer difference in market affordability, this is £344,093 above the average UK house price. As the HPER (house price to earnings ratio) surges, many buyers are turning to more affordable areas of the UK. Interestingly, the average rent now counts for 37% of a renter’s gross earnings. In London, the percentage of income spent on rent has inflated to 52%! The rising costs are affecting affordability, thus, driving people out of London and into more reasonable property markets.
Look to More Affordable Markets
Investing in an affordable area is not necessarily unbeneficial. Investing in a cheaper property could allow you to secure higher rental yields in the short term. For instance, you could purchase a property in Hull’s vibrant and beautiful historic city centre for only £154,571. For properties such as these, you would require a smaller deposit. In addition, the area is rich with potential tenants driving rental demand. Therefore, landlords can expect to achieve excellent rental yields.
But how about capital appreciation? Will your property increase in value over time? In this case, yes. In Hull, there are several regeneration schemes underway. Many developments sold exclusively by CityRise are within the regeneration zone or less than half a mile away. These strategically placed developments will demonstrate substantial capital growth. The positive influence on house prices will be driven by the improvements in the amenities in the area. Furthermore, more businesses will be attracted to the area, acting as a magnet for more skilled workers who will require rented accommodation.
Manchester14.3% Growth | £856 PCM
Birmingham13.7% Growth | £767 PCM
Nottingham13.0% Growth | £797 PCM
In the graph shown above, you can see that rental growth outside of London is steady. Therefore, you can secure a safer investment by purchasing in an area outside of the Capital. Furthermore, markets outside London are much more affordable.
For instance, in many more affordable places such as Bradford, Sheffield, and Liverpool, you can achieve high yields of up to 10%. Rents are soaring in these areas which are struggling to keep up with housing demand. Manchester, often nicknamed the Capital of the North, has shown the most substantial annual rental market growth of 14.2%.
Leeds11.5% Growth | £792 PCM
Sheffield9.2% Growth | £687 PCM
Liverpool8.9% Growth | £673 PCM
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