Savills Predict 6% Forecast in Rental Growth for the Buy-to-Let Market
According to the most recent Savills letting market forecast, the average UK rent will go up by a near-record 6% in 2024.
Savills suggests the main reason for the rise will be the continued supply and demand imbalance in the UK private rented sector.
Let’s look at the findings in greater detail.
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What Does the Latest UK Rental Forecast Look Like?
The latest Savills market forecast predicted that average UK rents would reach 9.5% annually by the end of 2023. If this figure proves correct, it will be slightly less than the 11.2% rise in 2022 but much higher than any other recorded year.
Savills’ research considered the company’s own data, goo from the property portal website Zoopla.
As a result, rents in the UK will have risen by 26% since the start of the pandemic in March 2020.
Additionally, the rental forecast for 2024 shows another near-record price rise in the offing.
Due to the current supply and demand imbalance, UK rents will rise by 6.0% in 2024 before potentially levelling off in 2025, when buyer activity in the housing market should resume higher levels.
However, a more substantial supply challenger and a strong city economy will ensure London rents rise quicker than the average UK figure during this period. While this may sound enticing, London property prices are enormous compared to the rest of the country, meaning any rental growth will be hampered by an affordability issue for most property investors.
Those huge prices result in lower yields, meaning London property investment is only an option for the super-rich. However, areas like the North West offer property investment opportunities that cost less than half of the average London rent, with more substantial rental yields.
With property prices to remain subdued in 2024 and further rental growth forecast, investors may see potential gross yields rise further in buy-to-let hotspots such as Liverpool city centre over the next year.
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What Did Savills Say About the UK Rental Market Forecast?
Emily Williams, Savills residential research team director, had the following to say about the latest Savills lettings market report:
‘Homes to rent continue to be in significant short supply. The end of a series of national lockdowns sparked increased rental demand in mid-2021 that has consistently outstripped supply ever since. At the same time, the rising cost of debt has impacted the profitability of many mortgaged landlords. This, together with a changed tax and policy environment, is forcing an increasing number to sell their properties.
‘As a result, competition for stock is tough, and tenants are having to bid upwards to secure a tenancy, supported – but only in part – by a strong growth in incomes, fuelling rents upwards in the short-to-medium term.
‘It’s very difficult to see where an increase in rental supply will come from in the next couple of years. Higher borrowing costs will also keep would-be-buyers in the rental sector for longer, underpinning demand, and while some landlords will be able to transact in cash to avoid the higher cost of debt, this is unlikely to move the dial on supply. Any significant increase in stock in the sector will be delayed until 2026 and beyond when interest rates have fallen more substantially.’ Why not review the interest rates charts history resources we recently published.
Looking at this analysis, the UK property investment looks set to remain a buyer’s market for some time, especially with competitive mortgage rates enticing investors and homebuyers, high rents, and huge tenant demand. Why not listen to the lastet Property Podcast from RWinvest.