Rising rents have dominated the headlines for many months, but what is happening in the rental market on a granular level? We take a deep dive into the statistics.
On the one hand, it is clear that fewer investment properties are being purchased than in the past. In the first seven months of this year, 11% of properties sold in Great Britain were bought by investors, well below the 16% level seen in the first seven months of 2015, before new tax and regulatory changes were introduced that have reduced the profitability of buy-to-lets for many landlords.
The largest drop-off in buy-to-let purchases is in the most expensive markets in the South of England, where yields tend to be lower. In London, the lowest yielding region in England & Wales, the share of property sales to investors has fallen from 17% in January-July 2015 to 10% in the same period this year.
Meanwhile, 16% of sales in the North of England in the first seven months of 2023 were to investors. This is on a par with 2016 levels, although it is still far below the proportions seen in the same periods in 2009-2011, when investment properties accounted for 22% of all sales in the North. With interest rates as high as they are currently, higher yields in the cheaper North are more attractive and, until there is a meaningful reduction in mortgage rates, it is difficult to see this pattern of investor purchases reversing.
Fewer investor purchases and more landlords selling up means there is less stock for tenants. Overall, there were 43% fewer homes available to rent in Great Britain in July than the same period two years ago. This supply issue has been compounded by mounting landlord costs, with many investors mortgage repayments tripling if they need to remortgage this year. Consequently, this has led to higher rents and increased competition for available properties, with more tenants making large upfront rent payments when moving in so as to make themselves as attractive as possible to landlords – this is especially true for lower earners and those with less than perfect credit scores.
In the first seven months of 2023, a record 11.1% of tenants paid at least three months’ rent upfront, up from 7.5% a decade ago. This year, 22% of new London tenancies saw three-plus months of rent paid upfront. In the Southeast, this figure is 19%, whereas it’s the lowest at 4% in Wales, where new rental laws came into effect in December 2022.
Last month, homes in Great Britain let in an average of 24 days. This is slightly up from an average of 23 days in July 2023, which shows that a little of the heat has come out of the market. However, it’s still substantially quicker than the 33 days an average home took to let in July 2021. The proportion of properties letting with a price reduction has also increased slightly from the low of 11% seen in July 2022 – last month, 13% of properties were let with a reduction to the advertised rent.
All in all, there is little sign of a return to anything like pre-pandemic times in the rental market, when annual rental growth averaged 1-3%. In fact, supply issues combined with rising landlord costs are only likely to heap further pressure on rents for the foreseeable.
