UK Rental Market Update Q3 2021

The UK rental market has experienced its highest level of growth in 13-years.

Rents in the UK increased by 4.6% year-on-year and 6% excluding London, with the level of demand doubling in city centres.

Supply of rental properties is restricted at 43% below the average over the past 5-years.

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High Levels of Demand for UK Rental Property

The average rent in the UK is 4.6% higher year-on-year at the end of September, increasing 3% from Q2 to Q3.

Excluding London, rental prices increased by 6%, which is the highest level in 14-years.

As the UK re-opened for business with workers returning to the office, students returning to higher educational centres and the leisure and tourism industries going back to normal, the demand doubled in city centres around the UK with a post-COVID bounce back.

Q3 is typically a very busy period with people moving after the summer and students starting or returning to university; therefore, the re-opening of the UK at the same time has impacted upon demand.

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High Rental Demand in City Centres

The UK’s major cities have seen a surge in demand with the likes of Manchester, Birmingham and Leeds experiencing double the levels of demand compared to Q1 this year.

This inflated demand has resulted in a strong level of rental growth in Q3 for city centres and a steady level of growth in the outer city areas as workers make the most if hybrid work from home schemes adopted by their employers.

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Undersupply of Rental Properties

The supply of properties to rent in the UK is 43% below the typical 5-year averages, which combined with heightened levels of demand has increased rent.

This undersupply of property is expected to remain and will result in rental growth in 2022.

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Imbalance in Supply & Demand of Rental Properties

Demand for rental properties have outstripped supply for the past year, further exacerbated by the post COVID bounce back.

This is not expected to be a short-term problem as changes brought in by the UK government in terms of taxation has resulted in a shortfall of private rented sector (PRS) properties coming onto the market. Savvy investors are continuing to invest into the UK property market, but within private limited companies to ensure that their investment is tax efficient. Click here to read about buying property in a UK limited company.

During the stamp duty holiday that came to a close at the end of September, more landlords have entered the market. The build-to-rent sector is becoming  more prevalent, with high street banks investing into the sector, but this is still nowhere near enough to plug the gap left as a result of lower levels of PRS investment.

This undersupply will continue to be reinforce rental growth across the UK in 2022 and for many years to come.

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London Rental Market

The annual rental growth in London is behind the rest of the UK, however, experienced an increase of 4.7% in Q3 with a 50% increase on the 5-year average for tenancies agreed, so is bouncing back.

The London bounce back is expected to continue, but due to the decline in rents that it has seen over the past 15-months it remains 5% lower than at the start of the COVID pandemic.

Affordability still remains an issue with London, being the least affordable rental market in the UK.

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2022 Rental Market Forecast

The UK’s employment market is very strong with the level of job vacancies at a record high, which is extremely promising for the rental market in 2022.

Levels of demand are expected to remain high in city centres where there is pent up demand and the supply of rental properties will remain constrained, which will cause upward pressure on rents.

Despite the rental increases over the past year, affordability remains in-line with the 5-year average at 37% of income. There is a direct link between the areas that are most affordable and the rental growth, with more room for growth in those more affordable areas, which is expected to support rental growth in the UK (excluding London) of 6% in 2021 and 4.5% in 2022.

The London market is expected to see rental growth of around 4% by the end of 2021 with a positive impact from the international rental markets and in 2022 it is forecast to see growth of 3.5%.

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Where to Invest in Buy-to-Let Property?

Rental growth and price growth are more prevalent in the more affordable areas of the UK, as has been proven.

The highest levels of demand are being experienced in cities such as Manchester where property prices are very affordable in comparison to London, which is where we recommend that buy-to-let property investors focus their attention.

There will be a continued shortage of private rental sector property for the foreseeable future, however, property prices are forecast to grow by 16% over the next 4-years in the North West of England, so now is the time to buy to make the most of affordable property prices, capital growth and rental growth.

The build-to-rent sector is the most competitive for buy-to-let property investors with below market value property for investment and excellent buyer incentives available.

Explore our range of Manchester property investments today.

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Source: Hometrack Q3 2021 Rental Market Report

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