July was a record breaking month for the rental market, claims a PropTech company.
Goodlord analyses tens of thousands of completed tenancies each month, and says last month saw the highest average rental costs since at least 2019. As rents soared, void periods also dropped dramatically. This set another record: the shortest void periods ever recorded by the Index. The company says pressure on rental stock has been increasing over the last year. The summer months are traditionally the busiest time for the market, typically thanks to a surge in student lets across July, August and September.
The pace of student lets, combined with rising interest rates and lack of stock, is likely to have created this unprecedented upward pressure on prices, Goodlord claims.
In detail, in July the average cost of rent in England hit £1,367 per property. This is 9.4% higher than the previous record, set in September 2022, of £1,249. July’s average cost of rent was, at £1,367, 19% higher than June’s averages, when rents sat at £1,148 per property. This is a huge month-on-month increase: the average month-on-month increase in rent during the year to date has been 1.3%
Rents on tenancies completed in July rose by 10% year-on-year.
Goodlord says the volume of larger, more expensive properties being let to groups of students in July ahead of the new academic year contributed to this rapid rise in average costs, as well as ongoing pressures to rental stock across the country. Geographically, rents rose in every region monitored by the Index.
There were significant uplifts in average rents in the North West, which saw a 48% annual rise in prices (£917 to £1,358), and the South West, which saw a 45% annual increase in average prices (£1,191 to £1,725).
Greater London, the South East and the West Midlands all saw more modest increases. The West Midlands is currently the cheapest region for renters, with Greater London the most expensive.
William Reeve, chief executive of Goodlord, says “this month’s numbers are quite staggering. In July we do usually expect to see an increase in rents and a reduction in voids - and all indicators pointed to a particularly red hot summer for the rental market, if not the weather. So while the 10% year-on-year increase is a big shift, the sharp drop in void periods is also particularly surprising. Digging into the data, we can see a large number of multiple occupancy student lets being confirmed during July, which has pushed up average prices in key regions such as the North East and South West. Traditionally, rental costs continue to increase until September before cooling off in the autumn, which could mean these aren’t the last records we’ll see broken before the year is out.”
Shocking new figures offer one reason why rental sector is so strong
New housing affordability figures provide one underlying reason why many potential buyers cannot make the move and instead rely increasingly on the private rental sector. New figures from the government show that in 2022, in England, the average house price was £275,000 and the average annual disposable household income was £33,000 – so houses cost 8.4 times income.
The official government affordability threshold is 5.0 times earnings – and we have been above this since 2017. Now in England, only the top 10% of households can afford an average home with fewer than the ‘affordable’ five years of income – it’s the top 30% in Wales and top 40% in Scotland and Northern Ireland.
The situation is even worse in some regions. In London, the average property is 13.9 times the average income. In the South East it’s 9.8 times, in the East of England 9.3 and in the South West 8.9 times.
Sarah Coles, head of personal finance at business consultancy Hargreaves Lansdown, says “runaway house prices made a mockery of housing affordability in 2022. While mortgage rates were low, this kind of financial contortion was feasible, but now people are facing remortgaging at much higher rates, it’s going to be incredibly painful. Housing hasn’t been affordable since 2017, according to the Office for National Statistics, and rampant price rises during the pandemic didn’t help. Lower mortgage rates helped people to stretch their finances to bigger loans. However, with 1.4m people remortgaging at a much higher rate this year, it’s going to bring real pain to hundreds of thousands of people. When a household spends 25% of its after-tax income on the mortgage, it’s considered to be at risk of falling behind on payments, warning that a Hargreaves Lansdown forecast suggests that over the next year, 26% of people will be in this position.”
Another analyst - Karen Noye, mortgage expert at Quilter - adds “this situation [in England] will now be even worse as these calculations do not take into account any effects on housing cost affordability resulting from changes to mortgage interest rates and payments stretching people’s budgets that much further leaving with even less to save towards a deposit to buy a property. The impact of this huge affordability pressure has already starting to be seen as people are forced to take out marathon mortgages just to be able to afford monthly payments. Data gathered by Quilter from the FCA shows there has been a near 120% uptick in the number of people taking out mortgage terms of 35 years or more. This highlights that more people are being forced to stretch their finances, opting for longer-term mortgages to manage monthly payments amidst climbing interest rates and high house prices.
Strikingly, there is a significant increase in older borrowers who will still be repaying their mortgages well into their 70's, potentially diverting a considerable portion of their retirement savings to meet their mortgage obligations. Looking forward, the pressures on affordability may lead to a downturn in house prices. The latest house price indices all point to declining or flatlining house prices. However, prices will need to drop considerably or wages increase massively for the affordability ratios to improve. While both are unlikely, the building of new homes to ease the supply and demand dynamic, and help first time buyers is likely to be a central battleground for next year’s election.”
Rental yield hotspot revealed
Rising rental yields signal a period of opportunity for property investors, according to new research.
Research from property investment platform, Sourced Franchise, reveals that UK rental yields have seen a marginal increase in the past year. The latest data shows that the current average yield in the UK is 5.2%, marking a 0.4% increase since this time last year.
The market is always cyclical
Chris Kirkwood, director of Sourced Franchise, says “economic turmoil can present great opportunities for investors who are willing to take calculated risks, and the UK’s current environment is the perfect example. Yes, the economy is struggling and rising mortgage rates are causing widespread concern on the housing market, but with house prices likely to fall further before they climb again, and rent values climbing at pace, buy-to-let landlords who can afford to take on current mortgage deals would be wise to pounce when the right properties come to market in the right locations. The same theory can be applied to all corners of the property industry, commercial and residential. The market is always cyclical and slumps and followed by growth and peaks. It’s moments like this that see great investors zig while everyone else zags, and therein lies the genius.”
Strongest yields are currently in Scotland
The strongest yields are currently Scotland (5.9%), while other regional hotspots include Northern Ireland (5.7%), the North West (5.5%), Yorkshire & Humber (4.9%), and London (4.7%).
Scotland also leads the way in terms of annual yield increases, rising by 0.64%.
With 0.49% growth, London is also performing well, as are Wales (0.35%), the West Midlands (0.34%), North West (0.34%), and Yorkshire & Humber (0.34%).
The South East is the only region to have recorded negative numbers, with the current yield of 4% marking an annual drop of -0.02%.
Prime London rental market’s “remarkable growth” - agent’s data
The post-Covid prime lettings market in London has seen remarkable growth, an agency says.
The latest data from Berkshire Hathaway HomeServices London show that rents have increased by 22 to 27 per cent, compared with the lows of 2020. The agency says this is showcasing the capital’s status as a highly sought-after destination for renters. Since May, the firm says it’s noticed a five per cent increase in demand from renters using apps compared to the same period in 2022. Despite June being quieter, demand still remains higher than the already high base point experienced during the post-lockdown summer.
Matt Staton, Head of Lettings at Berkshire Hathaway HomeServices London said “despite the temporary disruptions caused by Covid the market has rebounded quickly and although we continue to face global challenges the capitals prime lettings sector is thriving. We have witnessed a significant surge in demand for premium properties across London, demonstrating its resilience and presenting lucrative opportunities for investors and landlords. There is now 30% more stock available compared to 2022, with Berkshire Hathaway HomeServices London seeing a comparable 30% increase in transactions. Currently demand remains strong. We are seeing a 5% increase, and we now have the stock to meet this demand.
Even though last year apps were showing high demand, the limited availability of properties posed a challenge for applicants finding somewhere to move to. However, with higher interest rates and an increase in accidental Landlords, searches are being far more successful matching properties with people.”