The current state of the UK rental market (March 2023)
As the UK rental market changes and evolves, it’s important to stay updated with the latest information available. Here we examine the current state of the rental market in March 2023 compared to where it was previously. Analysing the data we look at how much has changed for renters across the UK recently. What new challenges have arisen and what progress is being made?
The residential rental market has been running hot for 2 years, with an 11.1% increase in average rents for new-lets and 6.7% increase in earnings over the past 12 months.
The UK rental market has been highly competitive since March 2021, with an impressive 11.1% increase in average rents for new-lets compared to the same time last year. This shows no signs of slowing down either – even over the last 12 months, average earnings have increased by 6.7%, indicative of strong rental demand in many areas across the UK. This trend is likely to continue as long as new construction fails to keep up with demand and increased tenant interest puts strain on limited supplies of rental property.
High economic immigration and an influx of overseas students have boosted demand for rented homes and rental inflation remains strong.
These days rental inflation across the UK is strong due to high economic immigration and a surge of overseas students seeking accommodation. In early 2021, the UK government conducted a major shake-up of visa
rules to attract skilled talent. This was one of the drivers of record high net immigration totalling 504,000 people in the year to June 2022, the rental market demonstrated that this influx was still having a positive impact on demand for rented residential properties in the UK. This is promising news not just for investor landlords, but also those who are looking to move closer to work opportunities or universities. Although there is still more room for improvement regarding overall rent costs and availability, it appears that the UK rental market will continue on its path of growth and sustainability into the near future.
Supply of private rented homes remains broadly static, resulting in fewer available rentals on the open market and a major shift away from buy-to-let mortgages due to higher equity requirements.
Despite the rental market in the UK remaining relatively static, this hasn’t stopped many landlords from continuing to grow their operations and build their portfolios. However, with higher equity requirements having been set in place it has become increasingly difficult for individuals looking to invest in buy-to-let mortgages due to the amount of money required upfront at a time when rental demand is high. Of course, these developments mean fewer available rentals on the open market but this certainly won’t stop savvy investors from understanding how to maximise growth opportunities within this climate.
New investment is focused on buying lower value homes with higher rental yields or looking at other segments of the rental market that deliver higher revenues and stronger cash flow potential such as holiday/short lets, HMOs and long-term tenancies.
New investment into the UK rentals market has been on the rise in recent months. With figures from recent times showing a push to buy lower value homes with greater rental yields and higher revenues, investors are looking towards other options that can deliver a stronger cash flow potential. Such opportunities include entering the holiday/short lets, HMOs and long-term tenancies market for further returns. It appears that a great many investors are hungry to maximise their income and willing to look to key areas of opportunity for doing so, providing plenty of incentives for the smart investor.
Despite availability being below average across all types of areas, London has one of the lowest rental yields and highest rental inflation rates (15.2%) due to affordability concerns.
The rental market in the UK is slightly different to London which has been impacted by affordability concerns, which has led to one of the highest rental inflation rates in the country at 15.2%, despite availability being below average across all types of areas. This means that in addition to having fewer options, rents are rising so quickly people may find it difficult to secure a place regardless of whether they can afford it or not. It’s certainly worth monitoring the situation for any changes as we continue into 2023 and beyond as this could have an impact on landlords and renters alike.
Rental growth for new lets leads that of the whole rental market, but is likely to slow down by 4-5% by year end due to affordability concerns in inner London, inner cities and UK cities generally.
Up to March 2023, there was an influx of new rental lets in the UK due to increased demand from potential tenants. This has resulted in disproportionately high levels of rental growth for these new lets compared to the overall rental market. Unfortunately, due to affordability concerns in London and UK cities generally, this is unlikely to continue and will likely slow down drastically by year end, with a projected decrease of 4-5%. While landlords are sure to be disappointed that their returns will be limited, renters should also remain cautious of opting for “too much house” for their budget too soon, as it’s better not to get into financial difficulty in the future.
*the above information have been taken from Zoopla’s UK Rental Market Report