For property investors considering their options right now, focusing on the huge demand within the UK rental sector can be a good indication of portfolio performance.
The buy-to-let market in the UK remains extremely popular among property investors, and one major factor behind this is the strength of demand in the UK rental space. Tenants continue to vastly outnumber the supply of homes available in many areas, which is good news for landlords looking to keep their properties full.
This can tie in directly to the potential rental yields that can be achieved, with the latest data from Fleet Mortgages showing that the average UK rental yield in England and Wales has recently jumped to 7%. Within this, there are wide local and regional variations, with the north of England generally outpacing the south.
According to figures from the NRLA’s ‘State of the PRS’ winter snapshot, demand in the UK rental market from tenants is currently around 33% above the five-year average. This compares with when it was 10% below the five-year average in 2022, showing the significant upward trend in this statistic.
Meanwhile, although the NRLA’s figures show that available rental stock has actually increased in the past year, it still remains 18% below the five-year average. This shortage is something that many in the industry are pushing the government to take steps to rectify, by doing more to incentivise buy-to-let investors.
UK rental prices on the rise
Soaring rental prices in the UK have been widely reported, with the likes of Manchester, for example, recording a 19.6% annual rental price hike in the space of a year according to figures from a JLL report last summer. This trend has been ongoing due to the demand-supply imbalance, but exacerbated by mortgage rates.
According to the NRLA, average UK rental prices increased by 6.2% in the year to December 2023, while the consumer price index (CPI) marker for inflation rose by 4% at this time. The data also shows that annual earnings growth outpaced both of these figures, at 7.7%.
More than two thirds (68%) of buy-to-let landlords told the NRLA that they had upped their rents in the year to September 2023. Just a third (31%) chose to freeze rents during this period.
In the coming 12 months, around 75% of landlords said they expect to ask tenants for higher rents, and the main reasons for this were rises in inflation and interest rates, as well as property maintenance costs. While most landlords will not pass on the full additional costs they are faced with, it is inevitable that tenants will foot some of the bill.
Focus on high demand, high yields
For property investors looking into how or where to invest right now, the data indicates particularly strong performance in the buy-to-let markets of certain areas. Honing in on locations with strong tenant demand, competitive prices and good average yields is the starting block for most successful investment outcomes.
While landlords across the board are reporting heightened UK rental demand from tenants at the moment, the north west is an example of a region where appetite for rental property is especially high, according to Paragon Bank’s figures.
It found that the north west was experiencing the highest level of demand, with 75% of landlords saying more prospective tenants were interested in their rental homes. Normally, this also means shorter void period for landlords between tenancies, which has a further positive impact on returns.
The regions also came out top in a recent report from Savills, which put buy-to-let in the north west in its ‘top eight’ list of asset classes expected to see annualised returns of more than 8% in 2024. In fact, it predicts average returns of 9.2% for landlords in the north west this year, surpassing any other part of the UK.
If you’re interested in investing in UK property in the north west of England, BuyAssociation has a range of exciting opportunities at the moment, so get in touch for more information. If you’re looking at other lucrative areas, browse some of our UK property investments here.