Rental market competition: 21 tenants vying for each property rent - is buy-to-let a lucrative investment for property owners on Zoopla?
In the latest Rental Market Report, Zoopla has revealed a surge in tenant demand during July, with 21 people competing for each rental property - more than twice the pre-pandemic average. This high demand, coupled with low supply and rumours of landlords fleeing the sector amid fears of tax hikes, means rental growth remains high, albeit at a lower rate than in recent years.
The report shows that the slowdown in UK rental growth is being drawn out by a lack of homes for rent and continued strong demand. Richard Donnell, executive director at Zoopla, states, "The slowdown in rental inflation is being drawn out by a lack of homes for rent and continued strong demand."
Regional variations in rental growth are evident. For instance, Edinburgh rents were up 7.3% annually but rose 12% in Kirkcaldy. Similarly, in Walsall, average rents are up 10%, close to Birmingham where they are 5.7% higher. In Oldham, average rents are up 11%, close to Manchester where they are 6.3% higher. Interestingly, in Glasgow, average rents were up 5.3% annually in July. In nearby Kilmarnock, rents are rising by more than double that rate at 13%.
The state of the UK rental market is affected by various factors including tax changes, mortgage rates, and the cost-of-living crisis. Many property investors are fearing tax rises in the October Budget and reforms under the Renters' Rights Bill. Nathan Emerson, chief executive of estate agent trade body Propertymark, states that with tax changes and additional liabilities being imposed on many landlords, plus increases to the general cost of living and mortgage repayments, this places extreme pressure on operational costs.
The benefits of buy-to-let have been reduced in recent years due to higher mortgage rates and the scaling back of tax reliefs, which have dented landlord profits. Restrictions on mortgage interest relief and high mortgage rates have dampened the appeal of buy-to-let for many property investors in recent years. However, for those still in the buy-to-let market, there is only so much that tenants can afford to pay amid the cost-of-living crisis.
Current trends in rental growth near major cities show a general cooling of rent prices nationally due to increased supply of multifamily housing and slowed new construction, influenced by higher construction costs and tariffs on materials. Yet, there is notable regional variation in these trends.
In England, while average rents are up 5.7% in Birmingham, they have risen by 12% in neighbouring Wolverhampton. The benefits of buy-to-let have been reduced in recent years due to higher mortgage rates and the scaling back of tax reliefs, which have dented landlord profits. Despite this, rental growth may be slowing but landlords are still able to raise rents by double digits in areas close to major cities.
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