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An Update on the UK Rental Market

An Update on the UK Rental Market

As landlords continue to face plenty of challenges such as rising interest rates and legislative changes, our latest article takes stock of how the UK rental market has performed this past quarter. Can landlords expect to see much change in the coming months?

Recent reports from Rightmove and specialist buy to let lender Fleet Mortgages provide new insight into how the UK rental market has been performing, giving landlords the essential information they need to make informed property investment decisions.


Rental Market Update

Both reports highlight how sales transactions have impacted the buy to let market. Rightmove’s report reveals that 16% of properties currently for sale were previously listed on the rental market, up from 13% in pre-pandemic levels. Despite this increase, this is relatively low when considering the influx of legislation the market has seen so far this year and rising mortgage interest rates.

Additionally, Fleet’s report notes that UK Finance forecasts a 27% drop in house purchases into the buy to let market over the course of 2023. It also expects to see remortgage activity decline by 22% in comparison to the activity we saw in 2022.

Given current market volatility, it’s no surprise that many landlords will be increasingly cautious in their property investment plans. The rise in mortgage interest rate pricing perhaps accounts for the anticipated decline in remortgage activity. However, with rates unlikely to decrease in the near future, it’s more important than ever that property investors review their options and see what types of products they can secure.

Source: Fleet Rental Barometer Q2 2023


Rental Yields

Positively, rental yields continue to increase, providing landlords with some security in this ever-changing market. There are two main factors that continue to drive up average rental yields:

  • The ongoing supply and demand imbalance
  • House prices easing

Looking closely at the latest rental yields data, Fleet’s report found that rental yields across England and Wales averaged at 6.3% in Q2, down slightly from 6.5% in Q1. However, this is still up significantly from 5.6% in Q2 of last year.

On a regional basis, the North East recorded the highest average rental yields of 8.6%, followed closely by the North West and Wales both at 7.5%. Greater London and the South East recorded the lowest average rental yields, at 5.5% and 5.4% respectively.

However, whilst rental yields are increasing in every region across England and Wales, we’ve not seen the same trend when it comes to the actual increase in rents. While landlords in the North East might earn the highest yields, they also receive the lowest rents across the country, at an average of £643 per month. In contrast, although London properties generate the second-lowest average rental yields, property investors in the capital benefit from the highest rental income at an average of £2,111 per month.

Fleet’s report shows an average rental increase across the UK from £1,319 in Q1 to £1,353 in Q2. This is down from £1,413 in the same period last year. Despite this slight annual decrease, gross rental income now exceeds £1,000 per month in six out of the ten recorded regions, which is an increase of just five one year ago.


Rental Affordability Checks

Currently one of the biggest challenges that borrowers face, rental affordability calculations are unlikely to soften any time soon. Fleet’s report notes that the imbalance between gross rental income and the increased monthly mortgage costs continues to have a knock-on effect on buy to let market activity.

For many borrowers, tighter rent-to-income (RTI) calculations mean that they’re simply unable to afford the more competitive mortgage interest rates. One new trend we’ve seen emerge from lenders to help combat this is higher-fee products. By charging much higher arrangement fees, many borrowers can access lower interest rates and meet the RTI checks.

Whilst this may work in some cases, your broker will be able to cost up your options for you. It may be that it’s more cost-effective to take a slightly higher interest rate than paying a higher fee upfront.


Landlord Concerns

Fleet’s Barometer found that affordability, inflation, and rising interest rates continue to impact market activity in the buy to let sector.

Furthermore, Rightmove conducted a sentiment study that found that government attitude towards the PRS, rising taxation, and increasing compliance requirements all topped the list of landlord concerns. What’s clear is more support and backing are needed from the government to help landlords tackle the issues the market currently faces.


Tenant Activity

Despite these concerns and current landlord sentiment, the demand for privately rented homes remains strong.

Rightmove’s report found that 57% of landlords say that tenants are choosing to stay in their properties for more than two years, on average. In comparison, just 8% reported tenants staying for a year or less.

Consequently, the time to let a property remains competitive and highlights ongoing demand. Many landlords are still receiving significant interest from prospective tenants to view and rent their properties. Currently, the average time to let is just 17 days, which is the quickest recorded time since November last year.

It’s no surprise, then, that tenant demand continues to surpass even last year’s highs, up 3% compared to this time last year and 42% higher than June 2019. As mentioned above, the supply and demand imbalance means that landlords can expect to see rental yields continue to rise and offers ample opportunity to navigate rising interest rates and secure profits from property investments.


What’s next?

If you would like to discuss any property finance plans you have, or see what types of rates you could access, please get in touch with our expert brokers. Call us on 0345 345 6788, or submit an enquiry here.