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UK Rental Market Forecast drawn together from Savills, Knight Frank and Jones Lang LaSalle 2012 reports

Thursday, March 29, 2012 Posted in: Property Market Landlords

The private rented sector is growing in the UK. More households will be renting for longer as the social and demographic profile of renters changes. (Savills) As renting becomes a way of life it will increasingly be seen as a viable option to purchasing and hopefully lose the stigma attached. 

Rental levels vary dramatically across the UK and Affordability relative to income also varies dramatically. In London rent for a two bedroom property is equal to 53% of the average single person’s salary. In the North East it is 25%. These affordability constraints create a natural ‘ceiling’ to rents (Knight Frank). There is evidence that many tenants are bumping against these ceilings at present, with several consecutive monthly declines in average UK rents despite Research from Rightmove indicating 63% of current tenants expect their rent to go up in the next 12 months. Jones Lang LaSalle forecast that this imbalance will lead a slowing in the annual growth of rents this year in the mainstream market. However in the longer term as employment and earnings growth picks up its likely that rental growth will resume. 

Currently 200- 250,000 homes need to be built each year to meet demand in the UK, but house building has fallen to the lowest levels since World War II, with fewer than 110,000 homes completed in 2011. This lack of building is helping by putting upward pressure on rents (Knight Frank). Savills believe that £200 billion of investment is needed over the next five years to meet demand for private sector housing, but restricted levels of buy-to-let lending raise issues over the ability to meet this demand (Savills). Increasingly larger institutional investment will become critical to meet this demand, and to help facilitate this, the planning system may have to look at private rented sector housing as interchangeable with affordable housing (Savills). 

We have previously blogged on the new Build-to-let trend and this is likely to be the main entry for institutional investment into the private rental sector. The 2012 budget has done its part to help encourage this type of investment with changes to the stamp duty tax on buying multiple properties and the Chancellors promises to look at tax treatment of income received by real estate investment trusts. 

So all seems to be going in the right direction, Oxfords rents continue to stay strong and have so far outperformed national trends; however it would be foolish to think that these ceilings to rents do not apply and it’s important to set rents carefully to ensure that safe tenants that meet affordability requirement can be found.  It is likely that the new Build-To-Let investment will start to separate the market as applicants have more choice, this is likely to raise the standard of private rented accommodation and a help address affordability issues but landlords need to ensure their houses are finished to a good standard to compete with the modern purpose built accommodation that will increasingly be on offer.




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