Declining average rents mark a shift since 2019: implications for property investors.
In a remarkable shift, the typical rent for properties entering the market outside London has witnessed a decline for the first time since 2019, plummeting 0.2% to an average of £1,341 per month. According to RightMove's findings, this slide is a direct result of an increase in supply within the rental market, concurrent with a reduction in demand - two factors that have combined to bring rental prices down.
Alas, London is an exception to this trend, with rents continuing to rise albeit at a gradual pace, reaching yet another record high of £2,695 per month for the 13th consecutive quarter.
For many struggling renters, this news will be a welcome relief after years of fierce competition and skyrocketing rents. However, the news might not be so joyful for buy-to-let landlords, who are already grappling with a range of challenges. These obstacles include tax relief restrictions, lower capital gains tax allowances, high mortgage rates, new Renters' Rights Bill, and a 5% stamp duty surcharge introduced in the 2017 Autumn Budget.
Curious about the implications for buy-to-let landlords, we delved further into RightMove's data.
The Rental Market Chills
While rents for newly-listed homes outside London are still 4.7% higher than at this time last year, they have fallen 0.2% over the last quarter - marking the end of numerous months of new record high rents that surged during the pandemic. A significant factor contributing to this decline is the increased availability of rental properties, which is now 13% higher than January 2021. The North East has seen the most significant surge in rental properties, while the smallest increase has occurred in Wales. Additionally, the number of prospective tenants seeking to move has dropped by 16% compared to last year. Some of this demand may have transitioned to the sales market, with first-time buyers especially benefiting from lower mortgage rates and higher wages.
Estate agents report that some tenants are opting to stay put rather than move due to costs, while there are signs that some landlords are choosing to exit the market. However, there are also indications that larger landlords are continuing to invest. RightMove notes that there are currently no major signs of the upcoming Renters' Rights Bill affecting rental market dynamics.
Overall, the balance of supply and demand has improved.
RightMove's property expert, Colleen Babcock, comments: "While new tenants are still paying more than they were at this time last year, the pace of growth continues to slow."
Rent Decline: What Does It Mean for Buy-to-Let Landlords?
Although average rents have dipped slightly, the rental market remains robust, and in some areas, it's "very hot." Demand is strong, with the average number of applications per rental property standing at 10 - double the pre-pandemic average, according to RightMove. The property website also suggests that the amount of new properties coming onto the rental market is stable compared to last year, indicating neither a sudden influx of newly advertised properties nor a mass exodus of landlords.
Babcock adds: "Agents on the ground still tell us that the market is very hot, and some areas have improved more than others when it comes to the supply and demand balance."
John Baybut, managing director at Berkeley Shaw Real Estate in Liverpool, comments: "Demand is generally pretty strong and the market is still busier than before the pandemic. Tenants are paying very high rents, so with more supply on the market now, some are being more 'choosey'. Some have also decided the costs of moving are too expensive and have decided to stay put."
Baybut's advice for landlords is to carefully price their properties to be competitive, taking into consideration current market rents as well as their own mortgage rates and affordability pressures.
For those buy-to-let landlords who have chosen to continue investing in the property market, this year may bring some positive developments. Buy-to-let mortgage rates have increased in recent months but are predicted to fall this year. Additionally, property prices are expected to grow by as much as 4% this year, potentially increasing a buy-to-let investor's return when they come to sell a rental property. Despite these promising signs, landlords will need to navigate the challenges posed by the cooling rental market to maintain profitability in this increasingly competitive environment.
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- The rental market outside London has seen a decline in average rents for newly-listed properties, marking the first time since 2019 that this has occurred, with rents dropping 0.2% to £1,341 per month.
- The reduction in rental prices is primarily due to an increase in supply within the rental market, combined with a reduction in demand, leading to a more balanced supply and demand dynamic overall.
- RightMove's data indicates that the North East has seen the most significant surge in rental properties, while the smallest increase has occurred in Wales, with the total availability of rental properties now 13% higher than January 2021.
- In the realm of personal finance, lower mortgage rates and higher wages are attracting first-time buyers to the sales market, potentially shifting some demand from the rental market.
- Apart from lower rents, buy-to-let landlords must grapple with tax relief restrictions, lower capital gains tax allowances, high mortgage rates, new Renters' Rights Bill, and a 5% stamp duty surcharge introduced in the 2017 Autumn Budget, presenting a range of challenges for this sector.
