UK rental report shows surge in tenant demand and a ‘two-speed’ market

The number of people looking for rental homes continues to outpace supply across the UK. But Zoopla’s new report shows how the London buy-to-let market is different from the rest.

Annual rental growth across the UK, excluding London, hit 2.2% in June, supported by high demand in the private rented sector. However, while much of the country saw rents go up, London reported negative growth, with a 1.4% fall in rents year-on-year.

According to Zoopla, this is partly a result of a rising supply of properties to rent combined with lower demand. Taking COVID-19 into account, offices have closed and international travel has almost stopped. This ‘two-speed’ market means that the overall picture for the UK rental sector, removing London from the equation, is positive.

Unprecedented boost in demand

During lockdown, Zoopla notes that there was a major bounce-back in enquiries for UK rental properties. Even with some recent moderation, tenant demand is currently 33% higher than it was pre-lockdown. It is also 25% higher than it was this time last year.

The report states: “Renters, like homeowners, may have used lockdown as a chance to reassess how and where they are living, prompting a further boost to activity in the market. At the same time, some renters may have relocated to live with family or friends to save on rental costs – bringing more homes back to the market.

“The number of homes for rent has increased, slightly ahead of usual seasonal trends, with homes for rent 7% higher than this time last year at a national level.”

Where are rents rising the most?

Out of 64 cities analysed in the Zoopla report, only six had declining rents between June 2019 and June 2020. As well as London, these were Swindon, Coventry, Middlesbrough, Northampton and Aberdeen.

While the rest of the country saw positive growth, there were six standout locations that posted growth above 4%. These were Preston, Rochdale, Sunderland, Bristol, York and Leicester.

In England, rents in Yorkshire and the Humber region saw the biggest rise of 3% annual growth. This brings average rents there to £589 per month, one of the lowest in the country. The south-west, where yields have been lower for many landlords, actually saw the second highest rise. There, rents climbed by 2.8% to £798.

The East Midlands follows with an average annual rental increase of 2.7% (up to £643 per month). And next is the north-west, where rents went up by 2.4% to an average of £610 per month.

Outlook for the future

Many factors will come into play when deciding on the future ups and downs in the rental market. The effects of COVID-19 are likely to be felt in all markets for a long time, and on an economic level there is a lot of uncertainty.

However, Zoopla still expects a relatively positive outcome by the end of 2020. It predicts that UK rental growth (excluding London) will slow down, but still be positive (+1%) by year end. However, in London it may weaken further, with rents potentially reducing by as much as -5% by year end.

The report adds: “A slow reopening of city centres and businesses getting staff back into offices are likely to act as a drag on demand at what is usually a busy time of year. This will be compounded by any increase in unemployment.”

“Yet alongside this, reduced availability of high loan to value mortgages – used by many first-time buyers – will support demand for rented housing.”

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