Strong UK rental market bodes well for future

At the moment each day seems to bring yet another political argument, more barbed comments from the politicians and concern about the forthcoming general election. Indeed, over the last 24 hours we have seen HSBC bank suggesting it is looking elsewhere for its new head office amid concerns about the future of the UK economy. Against this background you would be forgiven for assuming that the UK property market would be struggling when indeed the opposite seems to be the case!

Before we look at the growth in the cost of renting property it is also worth noting that inflation in the UK is forecast to dip into negative territory which makes any positive returns even better.

England and Scotland

Data from the Office for National Statistics (ONS) shows that private rental prices in England and Scotland increased by 2.1% during the last 12 months. While this in itself may not look impressive we need to appreciate the current level of base rates in the UK, inflation and the impact which any rental increase has on the value of a property. As you might have suspected, this average increase of 2.1% across England and Scotland hides a variety of different trends in different areas.

It will come as no surprise to learn that rental values in London increased by 3.2% over the last 12 months whereas Yorkshire and the Humber, together with the north-east, saw increases of just 0.4%. The situation in Wales was a little different with rental costs increasing by 0.8% over the same period. So what is the main driver of rental price increases?

Chasing the jobs market

The employment market has improved overall across the UK although there are number of employment hotspots. These hotspots attract more than their fair share of individuals to the area which in itself increases demand for local property allowing landlords to increase rental prices. When you also factor in a significant shortage of rental property in these hotspot areas, and indeed generally across the UK, it is not difficult to see why rental prices continue to rise.

There have been suggestions over the last few weeks that up to 13 people are applying for every room advertised in London – which confirms why we have seen an exaggerated increase in London rental values. While there may be concerns about the short to medium term direction of the UK economy, the longer-term picture seems to be more balanced. Even though we will see the emergence of new employment hotspots it is the current and traditional hotspots which will continue to attract the attention of those looking for employment. In turn this will place yet more pressure on rental values offering a very attractive scenario for buy to let investors.

Long-term buy to let returns

Those who invest in the buy to let market on a long-term basis will not only benefit from increased demand for property going forward but also the increase in rental values. Even though all of the political parties have promised additional new build properties, this additional stock will take longer to emerge than many people have been led to believe.