Is the rental market slowing down?

Understanding where the market is in terms of rent prices is very important for your development project. If you are looking to renovate a property through construction finance or similar and a sell it for a higher value, no problem. If the market is strong, your property will maintain its value and be sold for a healthy profit.

But with rental prices falling slowly in the UK, you have to anticipate the potential return on investment for your project. What potential income you will receive from tenants should be reflected in what you spend in purchasing the property, how much you invest to ‘fix it up’ and what rent you charge. So being on top of rent trends is important, as we highlight below.

The Market

More people are renting than ever before in the United Kingdom, but what is happening to the rental market? In the last two years or so we have seen dramatic changes in the rental market. It has become evident that rent prices across the UK starting to fall in November of 2017 for the five time in around 5 years. Furthermore, slow rental growth in the Capital dragging down the national average price quite a lot.

In that November, rent prices shrank by 0.01pc in November, with falls of 0.83pc in the city of London which weighted down the otherwise resilient rental growth of 1.27pc in other areas.

Moving away from Britain’s capital city, other parts of the UK had seen consistent growth in the back end of 2017, stretching into 2018. This has particularly been the case in the East Midlands as well as the South West of the country. Both areas respectively recorded rent increases of 2.13pc and 1.63pc, meaning that the average rent paid for a property in the UK grew overall by 0.53pc between 2016 and 2017. This is around half the 1.22pc growth seen the previous year.

London

Buy-to-let lender Landbay published figures which revealed that the average rent for a UK property has now reached a record £1,196 per month. Landbay has also stated that although rent prices have fallen in a staggering 26 out of 33 London boroughs, people who are renting in the capital will unfortunately not be experiencing lower rent prices for too much longer. Despite the stunt in rent in London, on average the rental price is 2.5 times greater than the rental prices across the rest of the UK. Here, we are looking at £1,871 (London) as opposed £759 (rest of UK) as our average price for rent.

Commuter Belts

commuter-belts

Areas which border London and are typically referred to as commuter belts or hotspots are expected to become more expensive to rent in. They are also estimated to make the biggest increase across the whole country, price wise, in 2018.  This is attributed to a reduced interest in London as it gradually becomes an increasingly unaffordable place to live. Thus, more and more, people are opting to live in counties outside of London which have great and quick transport links into the centre.

A lot of people who are moving out of London into commuter hotspots are young professionals who feel they cannot support themselves financially in central London. Thus, there is more demand for rental properties as these young people are not buying their own homes at this stage in their life.

Brexit & Rent

brexit

Despite whether you are Remain or Leave, there is no doubt that Britain leaving the European Union was always going to have some domestic implications. This includes the effect that Brexit will have on the rental market, particularly in London.

In the capital city, renters hugely outweigh homeowners and so it is a fair assumption that renters will be concerned about how Brexit will be changing the London rental market. Business Insider states that rental prices are down by 4.3% compared to the year before and it is the first fall in 6 years.

For now, not much will change as the UK government has two years to negotiate Brexit deals from the date Article 50 was triggered. Only then can the UK successfully leave the European Union. Because of this, we are not likely to see any changes in the rental market as a direct result of Brexit until 2019 at least. For the timing being, if you move to London before 2019 the process will stay the same as it was before the referendum took place. If you are from the EU and want to move to the capital city, you will have the same rights to enter the country as you did before.

But what is likely to happen after 2019? The truth is, no one knows for sure as it stands what the full extent of the change will be. However, experts have predicted that Britain will see a rise in rent prices following the exit from the EU. As of yet, we have actually seen a drop in rental prices as discussed previously. That being said, Britain has not actually officially removed itself from the EU, so this could switch around and devastate those wishing to move to London beyond 2019.