A Perfect Storm to Raise Rents
Figures from ARLA Propertymark and research from Howsy show that landlords are benefitting from higher rental values, thanks to the UK’s booming jobs market. More tenants than ever before are facing rising rental values, with buy-to-let landlords helped not only by higher employment but also by increasing demand and lower supply.
Landlords Are Raising Rental Values
According to the Private Rented Sector Report from ARLA Propertymark, more tenants than ever experienced rental rises in July 2019. Around two-thirds of ARLA Propertymark’s agents reported landlords increasing rents. This is up from 31% a year earlier, and up 15% from June 2019.
Fewer Properties Available to Rent
One factor that may have contributed to rising rents is the drop in the number of properties available to rent in the private rented sector. Letting agents reported a decrease of around 7.5%, from an average of 199 properties under management per member branch in June to 184 in July.
More Tenants Are Chasing Rental Properties
Combined with a drop in rental properties under management, the number of people looking for rental properties jumped by almost 5% in July from June. On a per-branch basis, there are now 73 prospective tenants looking for a home to rent, up from 70 in June.
Investors Looking to Sell Is Stable
The number of buy-to-let landlords considering selling their properties and exiting the buy-to-let market has stabilised, on an annual and monthly basis, at four per branch.
So, we see selling pressure stagnating while demand is rising and supply is falling. That’s a combination that would put upward pressure on rental values, but there are more factors in play, too.
Landlords Are Covering the Tenants’ Fee Ban
We predicted that rents would rise in response to the tenant fee ban – and this is what also appears to be happening.
In my article “It’s Time for Landlords to Prepare for the New Tenant Fees Bill”, which we published in December 2018, I wrote:
“The government may have the intention of removing fees that may come as a surprise to some tenants, but the aim of reducing the costs of renting is likely to be missed. These costs need to be recouped. Letting agents will charge landlords the fees that tenants would otherwise have paid. To recoup these extra costs, landlords are likely to seek to raise rents.
“The unintended consequence of the Bill is therefore likely to mean higher rents, and this could cost tenants more money in the longer term. For those tenants who wish to buy their own home in the future, higher rents will make saving for a deposit more difficult.”
Strong Employment Is Pushing Rental Values Up, Too
Howsy recently crunched employment numbers from the ONS and compared them to rental values across the country. What it found is that there is a direct link between rising employment and rental value growth.
According to the ONS, 75.2% of the working-age population is now employed – up 5.32% in a year. Its numbers show that rents have increased by 11.9%. For each 1% increase in the employment rate, Howsy attributes 1.08% of rental value growth. The best-performing locations include:
- York, where the employment rate is 78.4%. Rents are 38% higher than they were five years ago.
- South Gloucestershire. Here, the employment rate is more than 80%, and rents have risen by 37% in five years.
- Bristol benefits from a 77.6% employment rate, and landlords have seen rents increase by 29% in the last five years.
- In Midlothian and East Lothian, where employment rates are 79.4% and 78.4% respectively, rents are up by 27% in the last five years.
- Edinburgh, Bath and Waltham Forest also benefit from high employment rates, and rental values of 27% higher than five years previously.
What Does All This Mean for Buy-to-Let Investors?
Research and statistics like these are useful for buy-to-let investors. They help to pinpoint factors that are important in the investment decision process. Factors such as supply and demand, and government policy. But also factors like employment.
It is easy to become mesmerised by high rental yields, but you should always take a balanced view when you invest – and also when you review your property portfolio. A strong local economy will help your property investment deliver consistent returns as your rental value rises, further supported by demand for rental properties.
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