Tenant Demand and Rents Continue to Rise into 2024
The UK private rented sector continues to attract buy-to-let landlords thanks to high tenancy demand and rising rents. Forecasts show that rent prices will continue to grow in 2024.
With inflation slowing to 4.6% in October and interest rates remaining at 5.25% for two months in a row, property investors may be inclined to trust in the buy-to-let market now before property prices rise again.
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What Is Supply and Demand in the UK Private Rented Sector?
Supply and demand remain imbalanced in the private rented sector. With no sign that supply will increase over the next year, landlords are expecting massive demand for their properties from prospective tenants.
As such, rental prices are continuing their upward trajectory.
Paragon Bank’s latest study shows that 71% of landlords saw an increase in tenant demand over Q3 2023. In comparison, 67% said the same thing for Q2 2023. Learn more about real estate property investment with our free guide!
The survey results underline the rental sector’s importance within the UK housing market. While mortgage rates are on their way down, first-time buyers still favour renting a property for the time being. Paragon’s results show that tenant demand is the highest it has been since the bank first conducted research 12 years ago.
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How Does Supply and Demand Affect UK Rental Prices?
According to the Paragon survey, 87% of landlords saw rising rents in their areas. Meanwhile, 70% of landlords admitted to upping their rents over the last year. In Q2, 65% of surveyed landlords raised their rent prices.
Furthermore, 54% of landlords intended to up their rents over the next six months. This has risen by 3% from Q2 2023. In addition, rental hikes should average around 8.4% for tenants.
Richard Rowntree, managing director for Mortgages for Paragon Bank, urged more investment in the UK buy-to-let market.
‘During the first two quarters of the year, we saw record levels of tenant demand reported by landlords,’ he said.
‘For this to be surpassed in Q3 highlights how the imbalance between the supply of rented homes and demand from renters is not improving. This reduces choice and increases competition for renters while fuelling rental inflation, a scenario that often impacts the most vulnerable to the greatest degree.’
‘With social housing unable to meet this demand and home ownership aspirations hindered by cost-of-living pressures, further investment in the PRS cannot be delayed.’
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How Much Will Rental Prices Go Up in 2024?
As a property investor, rental growth and increasing yields are some of the main positives of the current buy-to-let market, offsetting the current cost of borrowing and other housing costs.
According to the JLL Residential Property Forecast report, rental market growth trends will continue in 2024 thanks to tenant demand and low supply, among other things.
The report shows that rental home supply has fallen short of tenant demand by roughly 1.5 million homes. Over the next five years, the shortfall should amount to 720,000 in the UK’s private rented sector.
As a result, UK rents should increase by 22.80% between 2024 and 2028. Over the next year, the market should see a rise of 5%. Over the following years, rents are forecast to rise by 4.5% (2025), 4% (2026 and 2027), and 3.5% (2028).
JLL had the following to say in the report notes:
‘Looking ahead, over the next five years, the lack of new rental stock, the result of fewer new home completions and a more challenging interest rate environment will likely lead to rental growth surpassing wage growth.
‘We forecast a 5% increase in rents across the UK in 2024. From 2025 onwards, we anticipate that more attractive mortgage rates will prompt more tenants to transition into homeownership, and this shift will bring about a better equilibrium between tenant demand and available rental stock.’
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