A recent report from the Office of National Statistics shows a growth of 2.4% in the year to March 2022 in private rental prices in the UK, the highest annual growth rate since July 2016. Regionally, England saw private rental prices grow by 2.2%, increasing to 3.2% without London. This is a slight increase from the 3.1% growth in the year to February, which may seem insignificant, but implies a continuous steady rise in prices, and we’re unlikely to see changes to this trend anytime soon.

On the other hand, London had the lowest regional rental price growth, at just 0.4% in the year to March, although up from 0.2% in February. Wales saw an increase of 1.6% in the same time period, and Scotland’s prices grew by 2.8%. Northern Ireland saw the highest increase across the UK, with a growth of 6.5%.

These price growths have come as no surprise to industry experts and professionals, and with the continuation of the cost-of-living crisis, more landlords are likely to continue to follow suit. While this will, unfortunately, fall onto the tenants to cover, property investors and landlords have no choice but to up their own prices to manage and maintain the maintenance costs of owning the property. As such, we have seen some drastic shifts in tenant activity.

Tenants Remaining in their Homes for Longer

Research reveals that tenants are now spending longer in their rental homes, likely due to the market’s supply and demand disparity. In February, renters stayed in their properties for 21 months, but this has since increased to 23 months in March. With very little stock, prospective buyers or movers are limited in choice, meaning that moving home is simply unaffordable for the vast majority. Consequently, the lack of the usual rotation of properties being added to the market only perpetuates the problem.

Propertymark, a property investor membership group, reported recently that an average estate agency had as few as eight available and empty properties in March, a slight uptick from just five in February. Comparatively, an average of 93 tenants registered to each agency in the same period, another increase from 78 in February. Not only that, but a staggering 71% of their member agents had noted a rise in rental prices in March, up from 60% in the same period last year.

What does this mean for landlords?

With costs rising, some landlords are inevitably losing confidence and leaving the market. Propertymark noted an average increase from two to three landlords departing per branch from February to March. However, lenders are acutely aware of the concerns many landlords have with the current market. Moray Hulme, the Mortgage Sales Director at Paragon Bank, noted, “we must ensure buy-to-let remains attractive enough to investors who are vital in supplying the properties needed to meet demand”. It’ll be interesting to see the property finance solutions that come from this.

Tenant Demand Continues to Rise to Record High

Paragon Bank also released a report showing that the proportion of landlords noticing an increase in tenant demand is at 62%, the highest it’s ever been since tracking of the metric began in 2011. This is double the proportion of the same time last year, and almost four times the results from 2020.

More than 700 landlords were involved in the study, which concluded that 34% had seen a “significant increase”, followed by 28% reporting just a slight increase. Similarly, the report saw the lowest record of all time in landlords recording a decrease in demand, at only 3%. Quite impressively, for a region otherwise performing poorly, 84% of Central London landlords reported an increase in demand in Q1 this year, a dramatic increase from just 12% last year in the same period. Clearly, London is making a comeback post-pandemic, albeit much slower than other regions.

Such growth in demand makes the private rental sector a more-than-worthy investment, but with rates frequently changing, navigating this market, and sourcing the right mortgage for your needs can prove challenging. Having the right property finance secured is a sure way to get started in this market, and we can help with any of your funding needs. Submit an enquiry today, via our partner Mortgages For Business and one of  their expert brokers will be in touch

By Jeni Browne, Mortgages for Business