London yields

Could sky-high London rental prices boost lettings markets elsewhere?

The London rental market has been under pressure in recent months due to a drop in supply, and it could push more tenants away from the capital towards the burgeoning regions. 

In the capital, rents have been rising at rates more than double the national average in some areas. Meanwhile, the availability of rental homes compared with the number of tenants seeking them has become increasingly unbalanced, making it more difficult for renters to find the homes they need.

As a result, the number of private tenants leaving the London rental market in search of properties elsewhere has been on the rise and, according to comments from London estate agency Foxtons‘ chief executive Guy Gittins, the market will remain challenging until more stock comes to fruition.

Speaking on Radio 4’s Today programme earlier this week, Gittins stated: “We absolutely don’t welcome this but people are going to have to move,” adding that tenants will  “have to compromise on the property type or location.”

With analysis elsewhere in the market finding that growing numbers of private rented sector tenants are indeed choosing new locations, where they can achieve not only better value but the potential for a better quality of life and even a competitive jobs market to the capital, regional cities could be set for a boost.

More tenants moving to midlands and north

Recent research from Hamptons revealed that ‘record numbers’ of tenants were leaving the London rental sector, with 40% of all London renters who moved home last year opting to move away from the capital. This is 16% higher than 2021’s figure.

It also noted that, since 2012, the number of tenants escaping the London rental market each year has doubled, including a rise in the number of people leaving who were long-term tenants and had been in their properties for four or more years.

Of all those tenants choosing to relocate away from the capital in 2022, 38% decided to move to the midlands or the north of England. This is up from 27% in 2019, and demonstrates not only a willingness to up sticks to further flung locations, but a perceived improvement in what cities away from the capital can offer.

Indeed, the likes of Birmingham and Manchester are often the first cities that spring to mind when tenants look to leave the capital for an equally cosmopolitan way of life. Both of these cities have seen vast improvements in their job markets, opportunities, transport options and more in recent years through regeneration.

For property investors and tenants alike, cities in the north and the midlands offer much better value for money, with yields for landlords in these areas generally being higher than in London – while still being able to offer tenants competitive rates.

The ratio of rental outgoings in comparison to salaries is also more healthy in the towns and cities away from the London rental market, meaning a higher quality of life for many tenants.

London rental supply imbalance ‘unhealthy’

Foxtons’ Gittins described the disparity between supply and demand in the London rental sector as ‘unhealthy’ in his interview with Radio 4, and indicated that the reason behind it was due to policy changes making the landscape less appealing to investors, who were choosing to leave as a result.

“The main issue is not affordability for the majority of the market – it’s the stock issue,” he said, adding that this left the lack of rental housing so ‘dramatic’ that people were forced to leave.

Rising mortgage rates are another factor affecting the sector as a whole, and this is an issue being faced by the wider residential market as well as the buy-to-let space specifically. As financing costs rise, it is inevitable that some buy-to-let landlords may exit their investments.

What’s more, due to London’s high house prices, mortgage affordability in the capital is generally more constrained than in the regions such as the north and the midlands, where properties are cheaper and therefore less borrowing is normally required.

While the London rental market and property investment scene will always hold a lot of appeal to tenants and investors alike, the regional markets could continue to benefit from increased interest due to more people looking away from the capital.

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