The rate of which rents are rising has suddenly become a 13 year high while demand has soared by 76% in the new year.
Based on the new lets agreed, the average UK rents are now £969 a month. The rate of which rents are rising has reached a 13 year high of 8.3% in the final 3 months of 2021. The demand of rental homes has soared by 76% in the new year, compared with the same period between 2018-2021. The average cost of renting a home is close to a £1000 a month as soaring demand pushes prices high. Despite the jump in the cost, rents account for an average 30% of a single earners pay before tax which is broadly inline with a 10 year average of 36%. Renters are now paying £969 per month across the UK.
That is £62 a month more than the beginning of the pandemic according to the latest rental report by Home Track.
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What is happening to rents and why?
The rate in which the rents are rising reached a 13 year high of 8.3% in the final 3 months of 2021. The average annual rent for those agreeing a new let is now £744 higher than the pre-pandemic levels. However, rents are only 12% higher than where they were 5 years ago after they fell quite dramatically in some areas during the early stages of the pandemic. The cities were hit the hardest and are still taking some time to come back to pre-pandemic levels.
Rents in most regions in the UK in the past year have started to see a strong growth whilst the weakest increases are still in Scotland.
What is the demand for rental homes like?
The new year has seen a soaring demand of rental homes, with a number of people looking for a property 76% higher than what the same period was in 2018 and 2021.
While the pandemic saw increase in wider commuter zones as renters also embraced the “search for space converters”. People are now returning to the centres of major cities such as London, Manchester, Birmingham, Leeds and Edinburgh.
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Is there a good supply of homes available to rent?
With the height in demand in the rental market it has meant there is a lot less property currently available for tenants. This is then in turn driving the rents to even higher levels. The number of homes available in January was 39% lower than its typical start of a year. The imbalance between supply and demand is creating a fast moving rental market with intense competition, pushing the cost of renting higher.
Homes are taking an average of 14 days to let compared with 3 weeks in 2020. The shortage of available rental properties is due to fall in the investment in the sector of by to let landlords. It also means that landlords are selling their properties.
At the same time, rising costs are leading to many renters staying where they are, further affecting the number of homes that are available.
Will this continue?
It is difficult to know whether this market will continue but there is a high likelihood it will not. With fuel being increased together with food and other essentials there is a high likelihood that rents will start to slowly come down. Whilst tenants look at their out goings between rent and what they can afford.
What will it mean for you as a landlord?
The strong demand for rental accommodation combined with the shortage availability means there will be high demand for the property and landlords are unlikely to experience many void periods. However, there is always a word of caution. This situation may not last forever. Whilst there is an ongoing of shortage of rental homes it is expected to underpin modest rental growth in the coming months.
It is very important that you understand that rents will not forever be going up. The expectation is that they may rise by 5% across the country. This would be tempered with any particular rises again in fuel and costs etc.
Article written by Mark Harrington MD of iInsure 365
