What do rising rent prices mean for buy-to-let property investors?
Back in March of 2020, when the UK government announced that the country would go into lockdown, the rental market in the UK took a slight hit. With less people able to move property and some moving in with friends and family, the demand for rental properties dropped. But since the end of the lockdowns, the rental market has been booming. This in turn has opened up exciting opportunities for buy-to-let property investors.
Moreover, the rental property market shows no signs of slowing down. The average advertised rent outside London is 11.8% higher than a year ago and areas like Manchester have seen nearly a 20% increase.
Why have rental prices increased so much?
The simple answer is that supply has simply not been able to keep up with demand. According to housing giants Rightmove, demand is up by an average of 6% nation-wide, whereas supply is down by nearly 50%. This has caused the average rental price to increase by 11.8% outside of London, meaning that rent has hit an all-time high of £1088 per month on average.
What is affecting supply and demand?
There are several factors that are affecting supply and demand:
What is affecting supply?
- Agents and Landlords across the UK are reporting that tenants are signing longer leases. This means that a lot of the stock isn’t coming back on the market.
- Currently, there are between 150,000 – 200,000 new homes being built each year, which is below the required of 340,000 new homes. Therefore, construction is not keeping up with the demand.
- Another factor is unsuitable housing. According to Crisis, there is a backlog of 5 million households with unsuitable accommodation. These properties cannot be used as housing and add to the lack of supply.
Additionally, landlords are also experiencing less availability due to certain factors:
- Nearly 15% of landlords are not expanding their portfolio due to high housing prices.
- Nearly 10% have sold one or more of their properties
- 8% can’t develop properties due to lack of materials or tradespeople
- 6% are planning on selling up and leaving the market.
What is affecting demand?
- Many people moved in with family and friends during the pandemic and have since wanted to move into their own rental properties.
- A rise in rental prices has pushed tenants to sign longer tenancies to avoid further increases and to gain more stability in their lives.
- During the pandemic, a lot of overseas students stopped renting in the UK and had to do their studies from abroad. However, over the past year, more and more overseas students have returned to the UK and renting levels are returning to the pre-pandemic level.
What does this mean for buy-to-let property investors?
- Even though interest rates are increasing quickly, the buy-to-let industry is currently very stable. High demands and low supply mean that there is opportunity to make great ROI. For landlords that can afford to buy, there is a lot of money to be made.
- There are currently three times the number of tenants looking than there are available properties to rent. Thanks to this, buy-to-let property investors can choose between multiple suitable tenants without compromising on price.
- Due to the high demand, landlords are experiencing shorter void periods between occupants than ever before. This has significantly reduced the time that a property is not earning an income.
So, what are the hotspots that buy-to-let property investors should keep an eye on?
Manchester & Liverpool
The North-West of England has become one of the most popular destinations, with 7 out of the 10 UK hotspots to be found there.
More specifically, Manchester and Liverpool are extremely popular hotspots for tenants and property investors alike. The two cities saw a rental increase of 19.3% and 17.1% respectively compared to this time last year.