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Renting Could Boom Due to Prices in UK Housing Market

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    Inaffordability Means Investors Could Make Money With a Potential Rental Boom

    According to the latest figures from ONS regarding UK housing market affordability, full-time employees are spending up to 8.3 times their annual salary to purchase a home.

    While this figure is down from 8.5, it is still significantly above the ONS’s affordability threshold, meaning tenant demand could remain high for the foreseeable future.

    Let’s look at those figures in more detail.

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      What Did the ONS Data Reveal About the UK Housing Market?

      In 2023, full-time employees in England could expect to spend around 8.3 times their annual earnings to buy a home. In Wales, this figure was 6.1 times their annual earnings.

      At the national level, these ratios remained similar to 2022, indicating a return to the pre-coronavirus (COVID-19) pandemic trend after a significant increase between 2020 and 2021.

      Out of the 318 local authorities (LAs) in England and Wales, housing affordability improved in 237 (75%) since 2022, worsened in 77 (24%) and remained the same in the remaining 1%.

      However, with prices still above the ONS threshold, we may see more people entering the rental market as they continue to be priced out of home ownership.

      Over the last year, the UK saw unprecedented tenant demand thanks to high inflation and interest rates pushing up mortgage rates. With more people looking to rent, savvy property investors may see rents increase further than they already have done to match demand levels, leading to greater potential yields in the buy-to-let property investment market, mainly if they can comfortably afford the running costs of a buy-to-let.

      Rightmove predicts that rents will increase by 5% outside of London in 2024, while Savills forecast a 6% rise.

      Referring to the ONS 2023 data, 7% of LAs (23) had homes bought for less than five times workers’ earnings, making them affordable. This is higher than in 2022 and similar to numbers before the pandemic.

      The ten largest improvements in affordability in the past five years occurred in local authorities in London or bordering London. However, these areas remain some of the least affordable.

      New dwellings in each region and country cost more than five times the average earnings in 2023.

      Find Out More: To learn more about buy-to-let property investment, check out our guides on buy-to-let tax and how to buy multiple rental properties.

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      Where Are the Most Affordable Places in the UK According to ONS?

      According to ONS data, the most affordable LAs in 2023 were in the North West, North East, and Yorkshire and The Humber. This should come as no surprise – areas in the North of England tend to be more affordable than other regions.

      For instance, the average property price in the North West is £215,082 (per HM Land Registry), significantly cheaper than the UK price of £281,913. When you consider the more affordable property price average – and the fact Savills predicts the North West buy-to-let market to yield returns of 9.2% in 2024 – it’s easy to see why some investors would look to the North West to build a property portfolio further.

      Browse some of our buy-to-let area guides for more property investment insights:

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      Dale Barham

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      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.