The number of occasions I’ve either said or written a variation of the words ‘rising’, ‘increasing’, ‘soaring’ or ‘escalating’ has, for want of a better word, increased greatly over the past few months, and I have managed to back myself into the dreaded repetition hole.
Such positive words are often representative of a largely buoyant market and, while the buy-to-let (BTL) sector continues to perform admirably on many levels, it has to be said that not all these progressive sentiments are welcome trends for everyone.
Thankfully, BTL lending remains highly competitive
The subject of rising rents perfectly encapsulates this notion. There is no debate that we have seen, and continue to see, a strong upward shift in rental pricing. The latest Zoopla Rental Market Report outlined that growth had gained further momentum in the first quarter (Q1) of 2022 as elevated levels of rental demand placed greater pressure on rents.
The average monthly rent was reported to have climbed to £995 from £897 a year ago, taking the annual rate of growth to +11%, according to the Zoopla report, which is based on new lets agreed.
Sustained impetus
The rate of rental growth has generated sustained impetus across most markets in the past six months as post-pandemic demand surged back into city-centre markets and the supply of properties for rent struggled to keep pace. The rise in asking rents has been particularly acute in the flats market in London.
Additional data, from the Deposit Protection Service (DPS), also highlighted that UK rents had increased for the sixth consecutive quarter.
Average rents are said to stand at £849 a month: lower than the Zoopla estimate but still a £15 (1.80%) rise on £834 in Q4 2021, and a £49 (6.13%) rise on £800 in Q1 2021.
The rate of rental growth has generated sustained impetus across most markets in the past six months
London rents are reported to have risen in value the most, increasing by £34 (2.46%) on Q4 2021 and £90 (6.79%) since Q1 2021.
The DPS report also reflects Zoopla’s findings in suggesting that flats had the largest quarterly rise in rents during Q1 2022 — a first for the property category since the start of the corona-virus pandemic, with rents rising £16 (1.89%) to £863.
London resurgence
London has long been a hotbed of BTL activity due to strong potential yields and the ease with which to let properties. However, with the pandemic impacting the attraction of city living for a variety of reasons, the high-profile London rental market has inevitably suffered over the past couple of years.
Nevertheless, these data sources really highlight a resurgence throughout the capital.
With the supply squeeze set to continue over the summer months, rental prices are expected to go on rising not only in London but across the UK.
The rise in asking rents has been particularly acute in the flats market in London
Initially, people may think higher rents are a good thing for landlords. But it’s a trend that is more indicative of spiralling costs rather than of landlords trying to squeeze additional money from their tenants. Would most landlords rather charge less rent to make the same yield?
I certainly hope so.
And this is what I mean in suggesting an upward trend is not always a positive event for everyone.
Thankfully, although borrowing costs are also increasing due to interest rate hikes and economic uncertainty, the BTL lending arena remains highly competitive.
Average rents have risen for the sixth consecutive quarter
This factor is an important one as it arms land-lords with the ability to refinance part, or all, of their existing portfolios to purchase new properties and/or diversify into new property types.
And this helps keep the door open for landlords to take advantage of opportunities that continue to emerge. In a complex sector fuelled by a complex economic situation, it also highlights the value attached to good, professional, specialist advice.
Cat Armstrong is mortgage club director at Dynamo for Intermediaries
This article featured in the June edition of MS.
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