UK Rental Market: Tenant Demand at an All-Time High
It is not just housing demand that is soaring at record high levels this summer, but rental demand is too. Latest reports from the rental market sector have shown astonishing levels of demand across the UK. As a result, the UK average rent has broken the £1000 a month barrier for the first time on record. Therefore, it comes as no surprise that the number of tenants experiencing rental price increases has risen to 68%. This figure is up to five times higher than previous years, demonstrating that tenant demand is at an all-time high.
- 68% of tenants experiencing rent increases.
- The average rent in the UK is now at a record high of £1,007 – up from 5.9% at the same time last year.
- The average length of a tenancy has risen to 21 months.
- An average of 88 prospective private renters have registered at a UK estate agency branch during the month of June – the highest figure on record.
Demand remains strong
During the last three months, a little under 39% of landlords reported increased tenant demand. This is the highest level recorded since 2016. This is telling of a continuing trend, as this number has continued to rise year on year. Despite the uncertainty and low levels of demand in Q2 2020 – the peak of lockdown – demand has bounced back incredibly quickly. With monthly mortgage payments now averaging at more than monthly rent costs, landlords have taken the opportunity to increase their rental income and put prices up.
Rising house prices
In the first six months of 2021 alone, property prices rose by 5.6%. In part, this was down to a limited supply of property and a rush of buyers looking to benefit from Stamp Duty savings. However, this rise in prices is showing no sign of slowing down just yet. Savills forecast annual price growth has predicted a 9% increase for the remainder of the year. Despite the Stamp Duty savings coming to an end, the number of sales is remaining consistently high. At the current rate of transaction, it is expected that there will be a 35% increase in sales, compared to the last five years.
The Stamp Duty holiday, for many renters, was an incentive to step onto the property ladder. However, the success of the initiative has had adverse effects. As housing demand increased, so did prices. As a result, tenants are being anchored into the rental market which in turn, has driven up demand. With property prices expected to see strong growth for the remainder of the year, we can expect the same for rental demand. Fortunately for investors, they are able to benefit from this booming market.
Change in buyer trends
As well as increased demand, buyer trends have also changed. As offices begin to reopen, demand should continue to increase in city centres. City centres usually benefit from corporate demand. However, throughout lockdown, there was a decline in corporate tenants who seemed to be seeking larger properties with more outdoor space. More recently, towards the end of July, corporate demand is beginning to recover.
Another change in buyer trends comes from the tourism market. Across UK tourist hotspots, restrictions on international travel resulted in certain rental markets enduring a slow period throughout lockdown. However, we expect this demand to return as restrictions are being lifted.
Similarly, we saw a drop in student tenants, many of whom attended online university for the entirety of the year. However, data from The Universities and Colleges Admissions Service (UCAS) shows that the number of UK university applicants to start in September 2021 is at record levels – up by 10% from last year. Furthermore, offers to start for non-EU international students are 12% higher than last year, reflecting the strong global reputation of UK universities.
Many universities will be opening their doors for face-to-face teaching once again, meaning there will still be a requirement to live near campus. This is great news for investors, as come September, they can expect to see demand soar in city centres following a slow period throughout 2020. In turn, rental prices will shoot up.
As demonstrated, now is an extremely prosperous time to invest in the buy-to-let market. Rental demand is increasing at an extremely rapid pace and is showing no sign of slowing down.
But which regions of the UK are experiencing the highest levels of rental demand?
In recent months, Birmingham has seen particularly strong growth in its city centre. This is partly due to the number of tenants who have been driven out of London. Subsequently, Birmingham has been recognised as the most popular destination for tenants to flee to. In addition, Yorkshire & the Humber has been a popular tenant destination. Landlords in the region have reported 65% increases in demand.
The North and the Midlands are stand out regions in the private rental sector. On top of regeneration projects, business relocation, and large investments, these areas are becoming more appealing places to live year on year. For investors looking to achieve high returns, these regions are definitely top locations.
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