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Rental Prices Still Rising in Buy-to-Let Investment Market

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    Estate Agents Note a Rise in Rental Figures Around Christmas

    While affordability slowly returns to the housing market, the most recent Propertymark research shows that rental prices rose in the last month of 2023 despite the typical pre-Christmas subdued tenant demand.

    What does this mean for UK buy-to-let investment in the opening months of 2024? And can buy-to-let investors expect continued rental growth over the next year?

    Let’s look at the findings in more detail.

    Discover More: If you’re interested in rental growth in the UK, check out our rental income calculator.

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      What Was the Rental Market Like at the End of 2023?

      According to the Propertymark Housing Insight Report, there was a predictable decline in tenant demand, evident from the decrease in the number of new prospective tenants registered per member branch – dropping from 86 in November 2023 to 63 in December 2023. This is to be expected during this period.

      The availability of rental properties mirrored this trend, with a slight reduction in the number of properties in December compared to November 2023. In December, there was an average of 9 properties available per member branch, down from 10 the previous month.

      However, 35% of agents experienced a rise in rental prices in December, suggesting that rental growth is still prevalent in the market despite tenant demand decline.

      Timothy Douglas, Head of Policy and Campaigns at Propertymark, said:

      “Propertymark’s December Housing Insight Report demonstrates that the rental market is still experiencing turbulence with the rising cost of renting and rental arrears.

      “That is why it is imperative that all governments across the UK do more to encourage investment in the private rental sector by reducing taxes for landlords and introduce policies that increase the number of homes to rent and bring down the cost of renting.”

      This news follows the latest findings from Rightmove, which show that the average monthly rent for new rental properties outside of London has reached £1,280, marking the 16th consecutive quarter of setting new records for rental prices. However, the increase for this quarter is marginal, standing at just £2 (+0.2%), representing the smallest uptick since 2019, predating the onset of the Covid-19 pandemic. In other news there has been an influx of Chinese property investors in the UK.

      Read More: For more property investment insights, check out our guides on buying property as a limited company and how to make money on property.

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      Property Market Analysis: Rental Market Forecast 2024

      When it comes to UK property investment, you’ll want to keep one eye on rental prices and another on property values.

      2023 was a subdued year for the property market due to numerous factors. For one, external events – such as the COVID-19 pandemic, conflict on the continent and the Liz Truss mini-budget – led to higher inflation. In response, the Bank of England raised interest rates 14 times in a row until they settled at 5.25%.

      Higher interest rates mean more expensive buy-to-let mortgage costs, which dissuades people from taking out mortgages. As a result, activity slowed down, and more people chose to rent instead of buying properties.

      This considerable increase in tenant demand and rising costs associated with buying properties increased rent prices at record levels. As such, buy-to-let investors have seen significant increases in gross rental yields.

      But is substantial rental growth going to continue throughout 2024? The short answer is yes – but not at the same rate.

      Savills predicts that the UK will see 6% rental growth throughout 2024, down from the 9.7% figure observed by Zoopla at the end of 2023.

      However, many forecasters do not expect property prices to rise during the next year despite mortgage rates falling along with inflation. While some forecasters are more optimistic about prices than last year, they still expect activity to resume once interest rates come down further towards the end of the year.

      For this reason, property investors may be able to find a good-value property this year, particularly if they shift their attention to northern regions like the North West, where the average property price is £214,925. Coupled with significant rental growth over the next 12 months, this may be an opportune time to invest in property and achieve a substantial gross yield before house prices rise again.

      For more on UK rental growth, take a look at some of our most recent buy-to-let area guides:

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      Dale Barham

      Dale is a property content writer at RWinvest. Keeping a close eye on the UK property market, Dale helps our readers stay informed and up to date on the latest market news and statistics.