In the UK, one of the biggest pieces of recent property news has focused on the significant rise in the number of people renting property instead of buying. UK rental market trends show that in just a generation, the country’s mindset has shifted, with young people seeing themselves as eternal renters rather than aspiring homeowners.
The UK rental market statistics speak for themselves. In 2017, a record £50 billion a year was spent on rental accommodation by tenants in the UK. This figure is more than double the 2007 level which stood at £22.6 billion. In July 2018, figures from HomeLet’s rental index revealed that the UK’s average rental costs had risen by 1.3 per cent over twelve months.
This huge increase in total rental spend and rental demand highlights a boom in the UK private rental sector, which is great news for buy to let investors. But what are the reasons behind this shift?
Why is the UK so good for Buy to Let?
Changing Attitudes towards Renting
Record figures show that the demand for rental properties is higher than ever. Nearly a fifth of UK households are now renting from a private landlord. One of the reasons behind this increased demand in the UK rental market is the fact that people’s attitudes towards renting have changed. Renting was, and still sometimes is, considered a last resort for those who struggled to join the property ladder. Today, however, far more people are satisfied with their rental accommodation and view renting as a choice rather than simply an obligation.
Young people are one of the largest groups of UK renters, with the majority of people renting a home being between the age of 25 to 34 according to UK rental market statistics in 2017. This is due to the fact that many young people tend to move from city to city for work, or want to experience living in the city centre before committing to buying a home of their own. With renting, tenants also have the freedom to ‘try before they buy’, and rent a property in a certain area to test whether they like the location before purchasing a property there themselves.
While young people do make up a large proportion of tenants in the private rental market, however, there’s also been a recent rise in the number of older renters. According to research by the Office for National Statistics, the number of 45 to 54-year-old renters had grown from 11 to 16 per cent between 2007 and 2017. During the same period, the number of renters aged between 16 to 24 had dropped to 12 per cent from 17 per cent. Figures from the National Landlords Association also show a significant rise in the number of retired renters between 2012 to 2016 – having grown by 200,000.
There are various reasons why older people may turn to renting houses and flats. Some people choose to sell their family home when their children move out, wishing to downsize to a smaller property such as an apartment in a location they enjoy. Since the landlord is responsible for things like repairs or maintenance in the property, this leaves less responsibility for the tenant which is another aspect that attracts both older and younger people to renting a home. With an increased number of older people renting, who potentially have more disposable income, high-end properties are creating popular buy to let opportunities for investors who want to benefit from an attractive rate of monthly rent.
Rising UK House Prices make buying more difficult
Of course, renting isn’t always a choice, and a lot of those renting in the UK are people who can’t afford to buy property due to high housing costs. While rising house prices seen throughout the UK are good news for those who hope to make gains through capital growth that makes their home worth more over time, people with lower incomes are struggling to save a large enough deposit to purchase a home of their own.
One of the main groups affected by this monumental shift towards rental properties is millennials. This group are often living in city centres, where property prices are highest, and buying where they want to live isn’t an option. This is especially true in areas like London, where housing costs come to a whopping £484,173 on average and so residents have no option other than to rent a London property. Even with more people needing to rent in London, however, London rental prices trends show a – 1.12 per cent decline in rental cost growth in London. This, paired with the low average rental yields London offers, is why so many investors are looking elsewhere for their investments, focusing on things like rental demand by area, high yields, and capital growth potential.
With massive student debts and rental bills that are often more than half of their salary, saving for deposits on houses and flats isn’t an option in the current market. These young professionals are looking for properties to rent in the form of high-quality rental accommodation in convenient city-centre locations, and new developments and regeneration projects are providing an answer for this. Developments like One Baltic Square, for example, which is located in the thriving Baltic Triangle area of Liverpool, offer fantastic rental accommodation with a luxury edge which is perfect for young professional residents.
A Booming Student Market
The popularity of the student property market in the UK is another reason for the rise in renters. Students make up a huge proportion of the UK property rental market, with many students travelling to new cities from around the UK and overseas boosting the demand for rental accommodation. The UK student housing market is one of the most popular in the world, even outgrowing the USA’s student property sector in 2015. As of 2017 and 2018, the UK was home to a total of 2.3 million students according to HESA Student Record.
Thanks to these high student numbers, more property development companies are creating purpose-built student accommodation to cater to levels of demand. This provides a lot of investment options for those keen to rent to a student market, especially in cities and towns with a high level of student rental demand by area.
In 2016, a record £50 billion a year was spent on rental accommodation by tenants in the UK.Sarah Roberts, RWinvest
What does this UK Rental Market Rise mean for Buy to Let Investments?
So we know that the UK is experiencing a rise in the number of people seeking properties to rent, but what exactly does this mean for the UK property investment market?
For potential investors, buy to let property is a lucrative asset. Due to more demand from renters, there’s been a significant average rent increase per year for UK properties. This is more prevalent in areas with high-performing property markets like Liverpool and Manchester. The UK rental market for 2019 highlighted these two cities for their rental price growth, high rental yields, and strong capital appreciation. Due to experiencing some of the highest rental demand the UK has seen, Liverpool rental costs have grown by around 2.65 per cent, while Manchester has seen a 5.76 per cent increase. Investors who purchase a buy to let property in these North West cities can expect to receive an average monthly rent of £776 in Liverpool and £1,148 in Manchester. While rent in Manchester and Liverpool is increasing, other Northern cities are also on the rise. Rent in Leeds, for instance, has increased by 2.47 per cent, causing a buzz within many property news outlets who recommend the area’s potential.
This rental growth in the UK is encouraging more and more people to make a buy to let investment. With opportunities like the Liverpool student investment, City Point, investors can purchase an apartment from as little as £59,995 and benefit from 8 per cent net rental returns due to high demand from students in the city.
UK rental market trends predict even further growth over the coming years. Research by The Charted Industry Surveyors has found that by 2023, rental values in the UK will have risen by 15 per cent. If you’re interested in joining the UK’s buy to let investment market, the time to do so is now, as prices in the UK housing market are also set to see an increase. Take a look at our properties page to search for property opportunities in the North of England and get in touch if you’re ready to begin your investor journey.