UK Rental Market Continues to Heat Up
Since the beginning of 2023, rental prices have risen to record levels across the UK with month-on-month increases of up to 3% in some areas between April and May.
On average, UK rents increased by around 1.2% in May of this year to £1,213/month – up from the April figure of £1,199 according to HomeLet.
During this period, rents in London reached a record high of around £2,039, which is one of the highest monthly rates ever recorded based on HomeLet’s most recent data. Other locations, such as the North West, are seeing promising rental growth.
Why are Rents Increasing?
This consistent rise in rental prices across most UK regions is due largely to a combination of higher mortgage costs and a shortage of adequate and affordable housing, particularly for first-time buyers.
Together, these factors appear to be persuading people who may have been hoping to buy their first home in the past year to continue renting; at least until the market returns to the more affordable levels of the past.
In response to record levels of inflation, the Bank of England increased their mortgage interest rate to a record-breaking 4.5% in May of this year – the highest interest rate rise in the UK since 2008.
For many, this has made the cost of borrowing too expensive leading to a decrease in the amount of people taking out a mortgage and purchasing a property this year.
Additionally, as inflation has yet to fall back to more normal levels, there is a very real chance that this rate could again increase over the summer months.
Where are Rents Rising the Most?
From a buy-to-let investment perspective, there are a number of regions across the UK showing strong signs of rental growth such as the North West, which saw an increase of 0.83% in the average rental price between April and May.
This sits above the average increase of 0.73% across England and 0.32% in the Greater London area, making the North West one of the most promising regions in which to invest when it comes to rental growth.
Furthermore, the North West’s two main cities, Liverpool and Manchester, have now established themselves among the best buy-to-let investment areas in the UK, offering some of the country’s strongest rental yields and property prices far below their London equivalents.
According to official Zoopla reports – published in January 2023 – rents have increased in Liverpool by 8.7% since 2020. During this period, Manchester has also seen significant growth with rental prices rising by some 13.8%, which is among the highest increases in the UK based on recent data.
In terms of future growth, property experts JLL predict that rental prices in Liverpool will increase by a further 10% between now and 2026, with Manchester rents set to rise by a further 11% in the same period.
What Does This Mean for Investors?
This cycle of rising interest rates and rental prices has also caused average UK property prices to fall slightly this year due to decreased demand stemming from the ongoing cost of living crisis that’s affecting all sectors of the economy.
From an investment perspective, however, this appears to have presented a unique and potentially lucrative window of opportunity to enter the buy-to-let market.
In regions like the North West, particularly when the Manchester and Liverpool buy-to-let markets are performing so well, investors that can afford to enter the market now stand to make significant returns.
As well as the expected continuation of rent increases in these two northern cities, property prices are expected to rise by an average of 11.7% across the North West between now and 2027.
This presents an excellent capital growth opportunity for investors who enter the market now as the value of their investment will start rising by the end of this year, according to market experts.
Investing in off-plan property has also been cited as an increasingly lucrative option given the current market outlook, with properties likely to increase in value while in construction.