uk buy-to-let uk rents

UK rents could surge by more than 22% over the next five years

As high demand in the private rented sector shows no signs of abating, the latest forecast predicts that UK rents will continue to climb quickly over the next few years.

UK rents have been pushed up at a much faster pace than house prices recently, due to a combination of factors including a shortage of rental supply, a fall in first-time buyers due to high mortgage rates and other economic factors. In the year to August, UK rental costs increased by a record-high 5.5%.

According to the latest outlook published by Knight Frank, the “strength of the labour market and job creation” are also key drivers for boosting demand across the UK’s rental market, and this is also serving to keep pushing up prices in the sector.

As a result, the estate agency is predicting the current annual record to be broken, as it expects UK rents to have soared on an annual basis by 6.5% by the end of 2023. It expects this to be followed by a 5% hike over the course of 2024, then 3.5%, 3% and 2.5% in the following years: a cumulative total of 22.2%.

These latest figures are an upwards revision from Knight Frank’s previous forecast, as current market conditions continue to drive rates up at a faster pace than ever.

Prime Central London leads the way

Partly because it starts from a lower base point due to its slower growth in recent years, Prime Central London is expected to see even steeper rent rises in the five-year outlook. By the end of 2023, the report predicts a record-high 8% surge in rental values.

After this, like the rest of UK rents, this is expected to taper off to 5% in 2024, then 3% in each of the following three years, leading to a cumulative total of 23.9% for the five years. This is almost mirrored by Prime Outer London, where overall growth of 23.3% is expected by 2027.

According to Knight Frank, the reason for this is that, in London, the imbalance between supply and demand will take more time to correct, as many landlords have chosen to exit due to higher costs and taxes. While some have left the sector completely, others may have invested in cheaper locations instead.

The report adds: “There is evidence the balance is correcting in the capital’s prime markets due to the discretionary nature of owners, some of whom have decided to let out their property due to the uncertain trajectory for prices.”

UK rents more affordable in the regions

Only last month, the latest data showed that the average cost of renting a single room in London had surpassed £1,000 for the first time; and if Knight Frank’s predictions are anything to go by, this is only expected to continue to rise along with average UK rents.

For many, the only option will be to leave London and the surrounding area and relocate to more affordable places to live, including some of the UK’s regional towns and cities. Many of these alternative locations have rapidly improving prospects from an employment point of view, as well as cheaper housing.

A recent report from Zoopla highlighted the north east as the cheapest overall place for UK rents, where the average renting household pays £649 per month.

In terms of major cities, the likes of Birmingham, Liverpool, Belfast and Sheffield were noted as some of the best value for money places to live, where average rents sit below £900 per month. Again, all of these places have seen a good level of investment and regeneration in recent years, too.

From an investment point of view, rental yields in such areas also tend to be significantly stronger, with more affordable property prices combined with high tenant demand.

BuyAssociation specialises in connecting investors with some of the most exciting property investment opportunities across the UK, particularly in high-yielding locations. Browse some of our current projects, or get in touch for more information.

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