buy-to-let mortgage uk rental

Could UK rental boom be on the cards as buying becomes pricier?

Despite a recent levelling off in house prices and mortgage rates, it seems that the UK rental market is set to remain in high demand as renting is often cheaper. 

The UK rental market has experienced unprecedented levels of demand in recent years, with many in the industry pointing to factors such as prospective buyers putting off their first purchase, a shortage of rental property, and also lifestyle changes that make the flexibility of renting more appealing.

All of these factors, alongside an overall rise in the quality of UK rental accommodation thanks in part to the build-to-rent boom – which offers a higher calibre of property to tenants – have also pushed up rental prices at an extremely fast rate. This has been exacerbated by some landlords increasing rents to cover higher mortgage costs.

However, despite these cost rises, new research from Halifax has revealed that it is actually cheaper to rent at the moment than to be a first-time buyer in nine out of 12 regions in the UK. This represents the smallest gap between homeownership and renting since 2019.

The south west, London and Scotland were the only places where the average monthly cost of owning a home as a first-time buyer was cheaper than renting.

Houses price rises have limited affordability

At the end of last year, the average house price in England was £290,000 according to ONS figures, which was the equivalent to 8.3 times the average household’s annual earnings. Since the pandemic, house prices climbed particularly steeply, and this is a long way from being reversed by the recent corrections being seen.

As Sarah Coles, head of personal finance at Hargreaves Lansdown, points out, earnings have doubled since 1997 but house prices are four and a half times higher, showing the affordability gap. This will undoubtedly have led to greater demand in the UK rental market as people find it harder to get onto the property ladder.

Sarah Coles said: “Houses are frankly unaffordable at the moment. The pandemic property boom ratcheted up the cost of property, and while wages are growing faster at the moment, they fell so far behind house prices in recent years that there’s acres of ground yet to be made up.

“It means buyers in England are having to find an astonishing 8.3 times their income to buy a home.”

However, it is worth noting that while wage growth has not kept pace with house price rises, interest rates throughout the 1990s were higher than they are today (5.25%). Therefore, although properties were considerably cheaper in relation to wage rates, those with mortgages were paying greater amounts of interest.

UK rental market continues to surge

With mortgage rates now much higher than they were pre-pandemic, along with the cost of living crisis which will certainly have affected many prospective buyers trying to save up deposits, it is likely that many will remain in the UK rental market for longer.

For landlords, this means greater levels of demand for their properties, which can be beneficial when it comes to rental yields as they are unlikely to sit vacant for long between tenancies. What’s more, rents are likely to remain buoyed as a result of this trend.

Across the country as a whole, according to Halifax, tenants in the UK rental market are paying an average of just £27 a month more than a mortgage, at £1,258 compared with £1,231. In the past, homeowners have expected to make annual savings of more than £1,000.

According to one recent study by the National Residential Landlords Association, demand in the UK rental sector is currently a third higher than the five-year average, and unless there are any major changes ahead with regards to mortgage rates, the trend doesn’t look set to shift in the coming months.

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