Average UK salary rising faster than average cost of renting in PRS

There’s a common misconception that landlords are forever hiking their rents. While rental income from buy-to-let is a major draw for property investors, new research shows how the cost of renting compares to other day-to-day outgoings.

The cost of accommodation in the UK tends to be people’s biggest monthly outgoing. Particularly in the private rented sector, the cost of renting might take up a big proportion of your salary.

However, far from the “greedy landlords” often portrayed in the media, it seems that rental costs are not rising drastically. Deposit replacement scheme Ome has found that a number of other monthly essentials (or non-essentials) have seen costs rise much further.

According to their research, between 2017 and 2019, average rents in the UK rose by 1.4%. This took the average cost for tenants from £683 per month to £692 per month. Of course, there will be huge regional variations here, as well as location-specific changes. For example, in areas where major investment and regeneration have taken place, renting costs may have increased more as the areas have become more appealing.

How it compares to the cost of living

The average salary in the UK has actually risen more than average rents, at a rate of 1.8% over the three years (2017 to 2019 inclusive). Average net incomes were £24,365 in 2019, up from £23,935 in 2017 (ONS figures).

Interestingly, it is the internet which has seen prices rise by the most significant amount over the years. This has jumped a massive 9.3%, from £27.75 a month to £30.32 a month. The cost of buying a new car has skyrocketed too, from an outright price of £17,216 to £18,662 (+8.4%).

Finally, the cost of the average grocery shop has also increased more than rents. People will now spend an average £245.27 per month, up by 2.1% from three years ago.

Matthew Hooker, co-founder of Ome, said: “The issue with renting is, of course, the consistent requirement to find a notable sum of money every month, meaning that many have to juggle their finances in order to accommodate rental sector payments as well as other living expenses.

“However, it’s reassuring to see that, at the very least, the cost of renting hasn’t seen the largest increase in price over the last three years”

“At the same time, the areas of life that have jumped significantly are one-off purchases such as cars, or more manageable outgoings that we can reduce if needed, such as our internet or grocery bills.”

How much money do landlords make each month?

Buy-to-let rental yields vary widely across the UK, and recent events have done little to affect this. While there is more to any property investment than just the monthly returns, it is something investors must factor in. The value of a house compared to the rent it can achieve will certainly affect your bottom line in the long run.

According to the latest Buy-to-let Rental Barometer from Fleet Mortgages, the north-west remains the top spot for yields overall. In the region, landlords can expect to achieve returns of around 7.6% through monthly rent. This is an increase of 0.6% for quarter two of 2020, up from 7% in Q2 2019.

The north-west was one of just three areas to have seen yields climb between April and June compared to the previous year. The others were the West Midlands with a 0.9% rise to 7%, and the south-east with a 0.6% rise to 5.5%.

On a monthly basis, landlords have plenty of outgoings too, like with any business. Insurance, management fees and general repairs and maintenance all make up a chunk of this. There is also tax, depending on the individual’s status.

What about when they sell up?

Of course, landlords and property investors also make money through property sales.

Over the course of 2019, buy-to-let landlords achieved an average of £78,100 in capital gains through their properties. This is a gross gain of an impressive 42% on those landlords’ initial investments, according to Hamptons International.

The study by the estate agency also found that 84% of landlords who sold up made pre-tax profits. It estimates that approximately 150,000 properties were sold by landlords over the course of 2019. On average, landlords had owned their properties for around 9.1 years, demonstrating the longevity of the UK property market.

There were huge regional variations in capital gains made by landlords across England and Wales. Those in London, for example, made average gross gains of a huge £253,850 from their properties. The highest gains were seen in Kensington & Chelsea, where investors achieved an average £924,010 more than they’d paid for them. At the other end of the scale, buy-to-let landlords selling up or refinancing in the north-east saw average gross gains of £11,710.

Actual profits were also higher in the capital, Hamptons found. Almost all (97%) of London landlords sold up for more than they had originally paid. However, in the north-east this figure fell to 45% of those landlords who divested assets last year.

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