Buy-to-Let Rental Growth Stays Ahead of Inflation | Investment Insights
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Report From Hamptons Shows Rise in Rental Costs Amid Market Stability
The rapid rise in rental costs was a defining feature of last year’s private rental market.
Most experts agreed that this extremely fast growth couldn’t continue for long, as rent would soon reach an affordability ceiling for the average tenant. However, this doesn’t mean rental costs will stop growing or start decreasing. The market has seen more stability in 2024, and rental growth is steadily continuing, according to a new report from Hamptons.
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UK Rent Up 7.1% Year-on-Year in February 2024
According to Hamptons’ latest market report, the average UK rent saw an annual increase of 7.1% in February. This is down from 8.3% in January as the market stabilises after a streak of record-breaking double-digit rises in 2023. Year-on-year increases peaked in August 2023 with a 12% annual hike.
However, last month’s 7.1% jump is still ahead of inflation, suggesting that private rents remain a fast-growing sector amid growing market stability.
According to Aneisha Beveridge, Head of Research at Hamptons: “The pace of rental growth continued to cool in February. But rents are still some way off falling annually, and tenants continue to feel the squeeze.
“Lower mortgage rates have meant landlords needing to refinance in 2024 are seeing a smaller adjustment in their mortgage costs than those who remortgaged in 2023. This is slowly helping to balance mortgaged investor’s books.”
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Why are Rents Rising at Such a Fast Pace in the UK Market?
According to Zoopla, rental affordability was improved between 2016 and 2021, with rental costs increasing by 4% during that period. This was because of weaker demand after Brexit and lower mortgage rates, which allowed for more new homeowners. This led to a hardier supply of available rental properties.
But currently, the market is experiencing an undersupply, driven by very high demand, little increase in new supply of available properties, and high mortgage rates dissuading first-time buyers.
These factors have led to rapid rental growth, which is outpacing inflation. Unless the UK receives a significant sudden supply boost of available rental properties, it is likely that growing rental costs will continue. Those investing to make money from property will most likely keep a keen eye on this persistent rental growth.
Regional Differences Suggest Northern Regions Will Keep Growing While London Slows Down
Regarding regional differences in rental inflation, Hamptons states that there are marked differences in rental inflation depending on what area of the UK you’re looking at. Some regions, such as Scotland (11%), are still experiencing double-digit growth. Scotland’s rental inflation for new lets has been extremely high since a rent cap was introduced in September 2022 that applies to existing tenancies.
Scotland’s rent cap makes it an exception in the UK, but rental growth has been occurring in other regions at disparate paces. Rental growth in London has been forecast by Zoopla to hit an affordability ceiling, potentially making buy-to-let properties in London less attractive. However, they also predict there is still room for growth in other regions with lower rent on average, such as those in the North of England.
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Buy-to-Let Rental Growth Stays Ahead of Inflation | Investment Insights
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