The lifting of lockdown restrictions and the gradual reopening of offices and amenities has led to high rental demand as employees are no longer working from home.
This has been coupled with an already large number of tenants looking for accommodation and a lack of homes to rent. Due to this high demand and low supply, the average rental property took just 16 days to let, according to the latest Rental Market Report from Zoopla. 1
As a result of these factors, and the number of renters keen to pay for extra space, further rental growth is expected in 2022.
Rents have been rapidly increasing
According to Zoopla’s Rental Market Report, outside of the capital, rents are increasing at the fastest rate for four-and-a-half years. In the north east, south west, East Midlands and Wales, rental growth saw a 10-year high.
In the north-east and south-west, rents have been rising due to the high demand for rental property and the shortage of stock. The north east showed the biggest rises with rents 5.5% higher in the first three months of this year than the previous year. This area has one of the most affordable rental markets in the UK, with rents generally accounting for 22% of a tenant’s income. That compares with 32% for the UK average.
Year-on-year, rents increased by 5.3% in the south west, 4.8% in the East Midlands and 3.8% in Wales. Outside of London, the average cost of renting a home in the UK increased by 3% year-on-year in the first three months of 2021, with an average rent of £780 per month.
Newcastle saw average rents grow by 5% year-on-year, followed by Sheffield at 4.7%, Glasgow and Liverpool at 4.1%, and Belfast at 3.8%. In the top five cities that saw the biggest rises, the average cost of renting was £665 a month or less.
Why is rental demand so high?
There are a number of factors behind the high level of rental demand.
One of the major reasons is that for many, home ownership is unaffordable. Fewer tenants are switching from renting to buying.
This is combined with a drop in the number of landlords entering the market. In 2020, the number of properties purchased with a buy-to-let mortgage was 45% lower than in 2015.
One of the reasons for this reluctance to enter the market as a landlord is the 3% stamp duty surcharge that was introduced. Landlords have had to adapt to tax changes and additional regulation that has resulted in a drop in the number of rental properties.
Outside of the capital, the number of new properties entering the rental market was 5% lower during the first three months of this year than the same period last year.
What are tenants looking for?
Research shows that tenants are looking for more space. When searching for a property, more tenants now want access to a garden or their own outdoor space. And where possible, parking.
These additional requirements are causing more renters to move rather than extend their lease.
Currently landlords are in a strong position to let their properties quickly. And if there’s extra space on offer, such as off-road parking and/or access to an outdoor area, then they can capitalise in the current rental climate.
