While demand in the UK rental market has eased from the frenetic post-pandemic period, competition remains high – and many tenants are choosing stability over entering the rat race.
For almost two years – or 20 consecutive months – annual rental growth on renewals has increased at a faster pace than for new lets, according to the latest Lettings Index from Hamptons.
The tenants that do stay longer in their rental homes – which constitutes the ones making up the ‘renewals’ side – are paying an average of £99 per month less than those tenants moving into new homes (the ‘new lets’ side).
Over the past 12 months, the UK rental market saw average rents on new lets increase by 1.5% to £1,366 per month, while tenants who have remained in the same property over that time are now paying an average of £1,267.
From an investment perspective, although price rises in the rental market have been largely put down to landlords covering additional borrowing costs and other outgoing rises, getting top rents isn’t necessarily a top priority – with many long-term landlords seeing the benefit of keeping good tenants for longer, even at slightly lower rents.
Rental market demand remains high
There are reports of ‘waning’ demand in the UK rental market, but the figures are all relative and heavily influenced by wider economic, political and lifestyle trends.
According to the latest rental market report from Zoopla, while demand for rental properties is down by 16% compared with this time last year, it is still 60% above pre-pandemic levels.
This is due to a number of factors, including many would-be first-time buyers remaining renting for longer due to affordability constraints and higher mortgage rates.
However, there have been improvements to mortgage finance options for first-time buyers over the past year, which explains some of this more recent fall in rental demand. Most first-time buyers are renters first, so rental market numbers dip when more people get onto the housing ladder.
There has also been a steady rise in rental supply, with 17% more homes available now than there were a year ago. This is easing the competition for tenants, and is likely to result in less steep rental price rises. But supply remains 20% below pre-pandemic levels, meaning there is still some way to go to balance the market.
Keeping hold of long-term tenants
When competition accelerated in the UK rental market in the wake of the pandemic, there was a rise in the number of tenants opting to stay put rather than take out new rental agreements.
This was partly due to practical reasons – viewings had to be carried out remotely, or not at all, during lockdowns. There was also the ‘race for space’ that ensued, creating huge appetite for larger properties away from city centres.
These trends have shifted as we have moved past the effects of the pandemic, with city centres once more being a favourite among young professional tenants in particular, while competition has eased across the rental market overall which has steadied prices.
Last year, the English Housing Survey revealed that landlords can now expect tenants to stay for an average of 4.4 years, although many in the private rented sector live in their homes much longer than that – with almost a third (32%) having lived in their current home for 10 years or more.
For property investors, there are numerous benefits to having longer-term tenants, making it a focal strategy for many experienced landlords.
- Less admin: Every time a tenant moves out, new ones must be found, which can be an administrative burden with time spent advertising the property, vetting prospective tenants and drawing up new tenancy agreements.
- Reduced letting costs: Linked to the above, there is a cost involved in taking on new tenants, whether you pay a letting agency or do it yourself.
- Peace of mind: Each time a new tenant moves in, there can be a ‘teething’ period where you and your tenant get to know each other. Keeping the same familiar tenants in your property can offer you additional peace of mind and predictability, and often a better relationship.
- Financial stability: If you have long-term tenants that pay their rent on time, you can enjoy a consistent income stream and a more secure rental yield, without void periods between tenancies. Long-term tenants may be less likely to default on rent payments.
- Better outcome for tenants: With a stronger relationship with tenants that stay for longer, stresses can be reduced for both the renter and the landlord, with better communication between the parties. Tenants are also more likely to feel at home in their property.
