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UK Rental Market Values: The New Average
Data from Zoopla reveals a new rental monthly average of £923. Rental figures continue to increase. During the same period last year, the average rental value was £886. Outside of London, the property rental market is witnessing a 3.0% growth in rental values. Despite the challenges faced by the rental market during this pandemic, the sector continues to grow. The growing rental figures sit in conjunction with strong rental demands. However, the market clashes with inadequate levels of housing stock. Ultimately, increasing rates are being caused by the combination of strong rental demand and low supply.
Tenants are facing substantial competition in the market with a limited number of options available to rent. Typically, rental properties are listed on the market for 16 days. However, growing levels of market activity and a constrained supply means properties are practically flying off the market! To put this into perspective, the average time to let a property during the same period last year was 17.7 days.
Rental Market Divided Across UK
If you are a regular CityRise blog reader, you will know about the ‘two-speed market division’. Where London is moving at a different pace to the rest of the regions across the UK. Currently, the market is split between major city centres, wider commuter towns and London.
However, London’s performance in the rental market this quarter is not as strong as the rest of the regions across the UK. The capital, once the prime location for property investment is witnessing a rental decline and a drop in rental values. Unsurprisingly, rents in London plummeted by -9.4% over the year. The drop in rents comes to no surprise as people continue to leave the city in search of cheaper and more affordable accommodation. In comparison to 2020, the rate of decline is easing. Previously, rents dropped to -10%.
Rents Rise Rapidly in North East
Rental growth hit a 10-year high in March in the North East, South West, East Midlands and Wales. Outside of London, rental growth across the UK climbs to a four-year high. Furthermore, rents are rising rapidly in the North East of England at a rate of 5.5%. Moreover, the North East has one of the largest affordable rental markets in the UK. The UK average rent accounts for 32% of the average income for a single earner. In the North East, the affordability rate is 22%, the most affordable out of all regions. This means rents account for 22% of an average income. Even though rents have risen by 1% year on year, it is still less than the average annual rise in wages.
A greater percentage of property investors are shifting their focus from London to the north of England. But why? First-time investors and seasoned investors can purchase a property in the north with a much smaller budget. In terms of rental demand and the success of a BTL investment, the north is still the ideal area to invest.
The average rent in London is £1,554. In London, 42.5% of the rent accounts for a single earner’s income. This is another reason why London’s city centre turned into a ghost town amid the pandemic. In short, rents here are more than double the values in the North West, Yorkshire, and the Midlands. The North East and Yorkshire and the Humber have some of the most affordable rents of £693 and £621. Therefore, rental demand here is extremely high as renters try securing the most competitive deal.
Ultimately, high rental demands in the north, are causing upward pressures on rents. Therefore, from a property investors perspective, this is a great investment opportunity. More investors are turning towards buying cheaper property in prime locations projecting strong rental yields. Particularly because investors can grow their property portfolios much more quickly by acquiring more properties for the same amount as a sole property in London.
Research published by property giant Zoopla shows rental demand grew by 59% in April, in comparison to the monthly average on the year before. Additionally, if you compare figures from Q1 2020 and Q1 2021, rental demand has increased by 32%. Demand continues to outstrip supply across the UK. Whereas the trend is reversed in London.
The elevated levels of demand are derived from a range of factors. As renters reassess their living requirements to accommodate for home working and studying, there has been a boom in the market. Therefore, an increasing number of renters are moving homes instead of extending tenancies.
As a result of the London exodus, incomparable levels of housing stock are returning to the rental market. During the pandemic, many city centres struggled with declining rental demands. This is primarily due to strict lockdown restrictions and the closure of stores and offices. As a result, many people were either furloughed or had to adapt to working from their own homes. People left behind pricey rental properties to move to cheaper and more affordable areas, away from places of work. Therefore, levels of housing supply in the centre continue to increase whilst demands dropped to an all-time low. Thus, causing rents to tumble. Interestingly, rental demands have elevated in commuter towns.
“Elevated levels of demand in the wider UK market, amid constrained supply, will continue to underpin rental growth this year”. – Grainne Gilmore, Zoopla Head of Research
So, what does the near future hold for the rental market?
The travel ban will soon be out of the equation. Travel restrictions will start to ease for business and leisure and with this, we will welcome the return of global tourism. Therefore, increasing levels of tourism will ease the elevated levels of stock in the city centres. Short-term-lets will once again become popular in the city.
Currently, the availability of mortgages with lower deposits is increasing. Consequently, more people will leave the sector to buy their first homes as the dream to become an aspiring homeowner comes into reach. However, financial uncertainties remain as furlough support is shortly coming to an end. We believe this may limit the number of people who will truly be able to take advantage of the low deposit mortgages. Hence, living in the rental market for longer.
The vaccination programme is proving to be a success in the UK. Businesses are resuming in the city centre and soon all social distancing measures will come to an end. We predict life will slowly but surely return to the pre-pandemic era, where we return to the usual hustle and bustle of the city centres. However, the market will not be identical to that prior to the pandemic. We will see a surge in activity in commuter towns as well as city centres.
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