In common with every other sector of the economy, the residential rental property market hasn’t escaped the impact of the Covid-19 pandemic. A new but shifting picture is emerging, and an extended period of uncertainty is likely to continue as new trends play out. How will this impact landlords looking for opportunities in a disrupted market?
Changing rental markets
Demand for residential property across the UK was 59% higher in April than in the same month between 2017 and 2019. However, supply isn’t keeping up, with a 5% drop in new properties coming onto the market in London alone. As a result, data for June 2021 indicates that rental prices are up 5.9% on last year, with an average rental price in the UK reaching an all-time high of £1,007.
The market is also showing substantial regional differences. After a sharp drop during lockdown, London prices have increased by 1.5%, although the average rent is still lower than in June 2019, yet in the rest of the UK, average rent prices grew by 8% in the last year, a 10% increase on pre-pandemic levels. Rental growth hit a 10-year monthly high in the northeast, East Midlands, Wales, and southwest.
Factors in a changing rental market
Behind the headline figures are some key factors that may have driven the changes:
· Since the start of the pandemic, 300,000 fewer rental properties have come onto the market, a drop of a third compared to the previous 12 months.
· Fewer people are making the financial commitment of buying a new home, so they are remaining in the rental sector and extending leases.
· Increased taxes and regulatory requirements have increased landlord costs, leading to increases in rents or smaller landlords pulling out of the market.
· Landlords have taken advantage of buoyant house prices to sell their properties.
· Tenant needs changed as people looked for additional indoor space for home offices, and the desire for a garden increased. This fed a move out of London and other large cities and towns.
A 45% reduction in the number of properties purchased through buy-to-let mortgages in 2020 compared to 2015 is a measure of the smaller number of landlords entering the rental market. Increased demand and reduced supply have combined to increase rents, while tenant preferences have driven regional variation in the rental market.
What happens next?
As for the future, much depends on the reopening of the economy, the ongoing vaccine roll-out and the confidence this brings. It is expected that demand for rental properties will continue to rise as people begin moving house again and young people join the market, looking for their first rental.
As we start to see what the new normal looks like, we can expect to see its effect on the rental market. We anticipate that city centre and town locations will see a recovery in demand for rental properties as offices and other businesses open up.
For landlords and agents who want to grab the opportunities offered by a disrupted market, it is important that their business is underpinned by the right level of protection, both for the tenant and the investment property. Having a robust property management process to find and retain the right tenant will prepare you for whatever lies ahead.
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