For landlords looking to safeguard their investments, recent rental market reports reveal how experts predict the sector to perform for the rest of the year, including rental pricing and where yields are best performing to boost profits on investment.
As we’ve seen with house prices, the rental market continues to gain traction in the aftermath of the COVID 19 pandemic. With new legislation and the ongoing cost of living crisis, landlords are navigating a tough economic climate. The latest rental reports provide insight into how the buy to let market is faring, and how to protect investments.
Rental pricing and Landlord activity
According to a recent ONS study, private rents paid by tenants in the UK have increased by 3% in the year to June 2022. This accounts for the largest annual growth rate since the ONS tracking began in 2016. Looking just at England, Rightmove reported that rents for properties outside of the capital have hit a record average of £1,126 a month, an increase of 11.8% since last year and up 3.5% from last quarter, the second highest quarterly rise in ten years. This rise is the highest annual rate growth in Rightmove’s 16 years of reporting and shows a 19% increase since the beginning of the pandemic two years ago.
London has seen an annual private rental price growth of just 1.7% in the year to June, making it the region with the lowest annual growth. However, looking at asking prices in the region tells a different story. With a record average asking rent of £2,257 per calendar month for Q2 2022, the capital boasts the fastest annual growth in asking rents, at 15.8%, indicating that London is set to make its post-pandemic recovery in earnest.
According to the Association of Residential Letting Agents’ May PRS Report, high demand continues to push up rents. Rightmove has increased its rental growth expectations from 5% to 8% as the supply and demand disparity persists, despite new listings being up 8% from the start of the year, with June having the highest number of new listings for the year so far. Hamptons note that June also saw 10% more homes available to rent across the country compared to the year before; however, this is an increase from record low levels.
However, in terms of landlord activity, there's a positive outlook. Rightmove reports that a third, or 34%, of landlords plan on expanding their portfolio in the next year, compared to just 11% who plan to sell up some of their properties. Those leaving the market have several motives driving them out: Maximising on selling their properties with record-high house prices, the increase in legislation, and the abolishment of section 21 evictions.
Recent rental yield data
Annual rental yields remain strong for the UK, with just a slight decline for Q2 this year compared to Q2 2021. Across England and Wales, Fleet Mortgages’ BTL Rental Barometer reveals annual yields dropped marginally from 6.1% to 5.5% for this period. This reflects each region across England and Wales experiencing a small drop in yields of between 0.1% and 0.9% in the year to the end of Q2 2022. Looking at this quarterly, from Q1 this year we have seen a slight drop of 0.2% from 5.7% on average for all regions. On the other hand, Wales and the East Midlands have had increases in their rental yields since Q1, while the Northwest, Southwest, and the West Midlands have seen no change in their levels at all.
The Northeast retained its spot as the region with the highest rental yields for the eighth consecutive quarter despite its slight dip of 0.4% to 8.3%. Yorkshire and Humberside and the Northwest also sustained their high rental yield levels. Fleet Mortgages reasons that “regions running at rental yield figures higher than the England & Wales average were doing so because of the ongoing strength of tenant demand in those areas compared to the level of supply available”. This trend continues in popular towns and city centres, with Manchester, Liverpool and Bristol as hotspots.
With supply and demand directly impacting regional yield data, Fleet are anticipating levels to stay consistent whilst the imbalance remains. Fleet concludes that: “Overall, for existing landlords, the rental yield figures remain a strong source of comfort, and while we believe the level of demand for PRS properties will dip, there is likely to still be enough – especially compared to property choice- to ensure they maintain good levels throughout the rest of 2022.”
The impact of rapid rental growth
According to Hamptons, tenants are expected to pay out a record £63 billion in rent this year, having already paid out £31 billion in the first six months. The record-breaking rental prices and growth rates we are seeing are driven not just by the supply and demand disparity mentioned above, but by landlords passing on running costs to their tenants. Head of Research at Hamptons, Aneisha Beveridge, commented that “landlords have been squeezed by rising mortgage rates, alongside more expensive insurance premiums and maintenance costs”.
A positive outlook for landlords
What is clear is that the supply and demand imbalance is the strongest catalyst for rent prices hiking. David Hannah, the Group Chairman at Cornerstone Tax, said recently that once global supply issues are resolved, we should see an influx in the supply of new build properties, which should subsequently calm the rental price increases to much more manageable levels. The NRLA has also called on the government to help resolve the issue: “by removing the stamp duty levy on additional properties, the government will encourage homeowners to open almost 900,000 new private rented homes across the UK over the next 10 years”.
However, it’s impossible to ignore the damage that has been done to the private rental sector. With increasing pressure from government policy and tax increases, the NRLA also noted that the amount of private rented homes in England has fallen by a quarter of a million since the start of the restrictions on mortgage interest relief. Landlords, therefore, can remain positive about the outlook of the buy to let market. However, it’s needless to say that more needs to be done to support and encourage growth in the sector that is safeguarding the fundamental supply issues the UK housing market currently faces.
29th July 2022