A new report has drilled down into the realities of the UK rental market, revealing the full extent that tenant demand has soared over recent years.
Letting agents are currently receiving double the amount of tenant enquiries, on average, than they were at this time of year of 2019, before the pandemic hit, according to the latest figures from Rightmove, with an average of 11 interested tenants per property compared with six enquiries per rental home five years ago.
This is based on the number of tenants interested in each property that the agent has on their books, and the research shows that the supply/demand gap has actually shortened compared with last year, with 7% more homes available now than 12 months ago.
It also takes into account the winter slowdown that is typical for this time of year, as during the summer, tenant demand reached a peak with an average of 19 shows of interest from tenants for each rental home on the market.
For buy-to-let landlords, ongoing strong tenant demand means an excellent outlook in terms of rental returns, due to the fact that void periods (where a property sits empty between a tenancy) are likely to be shorter, with properties filled quickly as soon as they come on the market.
As tenant demand continues to outstrip supply, it means rental growth continues to be on the cards for the year ahead, which also supports rental yields for landlords.
Tenant demand pushing up rents
Over the past five years, average rents have increased by 40%, says Rightmove, compared with average wage growth of 28%. This could create an “affordability ceiling” in the sector, whereby rental growth slows down as tenants lack the ability to pay more.
The average rental price outside London currently sits at £1,339 per calendar month, which is up 4.5% on this time last year. In London, while rents are substantially higher, they have only risen by 2% on average over the past 12 months.
Looking to the future, Rightmove predicts that with current tenant demand and housing supply, rents will increase by 3% both within and outside London by the end of 2025, levelling the playing field in terms of growth between the capital and the rest of the country.
However, this also means that more tenants could be pushed to leave London, as 3% rental growth in a cheaper market outside the capital could be the difference between affordability and being priced out.
Tim Bannister, Rightmove’s property expert, said: “There are two competing factors influencing rental price changes right now. The ongoing imbalance between supply and demand is putting upwards pressure on prices.
“On the other hand, rent rises outpacing wage growth over the past 5 years has stretched affordability to extreme levels, and is showing in the increasing number of price reductions.
“Whilst at a top-level, we’ve seen overall improvements in the balance between supply and demand, agents tell us they are still extremely busy and having to manage high volumes of tenant enquiries. We’re therefore likely to see a more normal figure of around 3% growth in newly advertised rents next year.”
Capitalising on tenant demand
Investing in property in an area of high tenant demand can be hugely beneficial for buy-to-let landlords, which is why it is a common strategy to focus on city and town centres, areas close to jobs and amenities, and places where there are excellent transport options; as all these factors tend to draw more tenants.
However, although strong tenant demand means lots of interest in your rental property once it’s listed, retaining good tenants for a long period of time can also boost how profitable your investment is in the long term.
Read this article by Heather Martens of Mortgage Advice Bureau on how you can retain great tenants to your advantage.
