The North West and South West of England experienced the strongest levels of tenant demand in a period which has seen the most buoyant growth since 2016.
A survey by buy-to-let lender Paragon Bank revealed tenant demand hit a four-year high in Q3 of 2020 with 29% of landlords reporting rising interest from renters during this period.
This was the highest number of respondents reporting increased demand since the third quarter of 2016 and came as one in ten of the 700 landlords quizzed reported ‘significant growth’.
But it was in the regions of the North West and South West where rental numbers were most buoyant with the survey finding 44% of landlords had seen a growth. This was closely followed by the East Midlands where 40% of landlords reported higher demand from tenants.
In Central London, meanwhile, just 16% of landlords saw growth in the last three months. Growth was slightly stronger in outer London areas, with a quarter of landlords recording rising demand.
Richard Rowntree, managing director of mortgages at Paragon Bank, said the record levels of tenant demand being reported by the likes of Rightmove and Zoopla when the housing market reopened in May had started to feed through to landlords as tenants reassessed where and how they wanted to live.
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Central London, he explained, was seeing the impact of Airbnb-style landlords moving property into long-term lettings, as well as a desire for larger properties.
Rowntree continued: “Outside of London, demand is buoyant from the East of England, where 27% of landlords are reporting growth in demand, to the North East and South West, where nearly half of respondents are telling us they are seeing positive growth.”
He added: “We expect this to continue for the foreseeable future and there’s a number of factors we’re seeing at play.
“For example, there’s been growth in homeowners taking advantage of strong prices and selling to move into rented, people are looking to secure a new home ahead of entering a potential second lockdown, whilst students left it late to secure property for the new academic year.”
The South West of England is the leading UK region when it comes to rent increases, as they were 6.6% higher in September than the same month last year.
HomeLet’s Rental Index shows that rents averaged at £902 in the South West in September 2020, up from £846 in September 2019.
There were also strong annual increases in the North East (4.3%), East of England (4.3%) and the North West (4.2%), considering the year we’ve had.
At the other end of the spectrum, Greater London saw rents fall by -2.8%, while they also decreased by -2.4% in Northern Ireland.
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Martin Totty, chief executive at HomeLet, said: “Whilst it’s undoubtedly the case many landlords are being supportive of their tenants and agreeing temporary reductions or deferrals, it will be encouraging for them to see rents agreed on new tenancies, in almost all parts of the country, are continuing to hold up and generally edge forward.
“This is likely because tenant demand remains strong whilst supply may be a little more constrained if some landlords are selling into a stronger sales market, even if that could be a short term phenomenon. It also doesn`t help tenants much if, for them, the prospect of securing first time mortgage finance remains as elusive as ever.
“So, those landlords committed to the sector for the long term and having shown their willingness to confront the multiple headwinds of: taxation change; new regulatory requirements; and, in certain circumstances, longer notice periods to gain possession of their properties, may still be rewarded for their flexibility and their perseverance with reasonable returns on their investment risk.”
Benham and Reeves, has revealed the best boroughs for student rental demand, despite predictions of a rental market decline due to a lower level of students heading to the capital. London’s higher education providers accommodate 16% of the UK’s university students each year, and as many as 32% of the capital’s students come from overseas.
The average London student pays £702 a month in rent, meaning those on a three-year course will pay out £8,424 a year, totalling more than £25,000 throughout their course.
This means the capital’s student body brings in nearly £271m to London’s rental market in rent each month, with international students accounting for £85.6m of it.
However, with COVID-19 causing travel restrictions and broader health implications for universities, it’s predicted that the number of students heading to London this term will drop by as much as -24%.
That’s a loss of over £65m a month for the London student rental sector, but despite this prediction, many areas of London are still experiencing extremely high levels of demand for student accommodation, something that will be welcome news to student landlords across the capital.
According to the research by Benham and Reeves, the number of student-specific rental properties that have already been snapped up by students sits at 22% of all student-specific properties listed on the rental market.
However, in Merton, this ratio is far higher, with 80% of all student accommodation already let agreed.
Bromley (75%), Bexley (61%), Barking and Dagenham (60%), Hounslow (53%), Harrow (53%) and Redbridge (50%) are also seeing high levels of current student demand for rental properties.
Even in more expensive markets such as Hammersmith and Fulham, Islington and Camden, student rental demand is sitting at 19% to 25%.
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Director of Benham and Reeves, Marc von Grundherr, commented: “There is currently an evident decline in the level of rental demand from students than we might otherwise expect at this time of year. This has, of course, been driven by a lower number of international students looking for properties due to the travel restrictions and other hurdles that the current pandemic has presented.
“However, while predictions of student rental market losses are rather eye-watering, to say the least, we don’t believe this will be an issue that plagues the market for long.
“Many current students are beginning their studies in a virtual capacity until such time they can make a move to London, and once they do, we should see a further influx of demand for suitable student lets.
“University is very much about the life experience you gain from actually moving to a new city or country. With London still offering some of the best standards of higher education you can find worldwide it’s unlikely students will refrain from this first-hand experience unless absolutely necessary.
“Like many areas of life this year, we may see a slow start to the university year. But as life develops to deal with COVID-19, greater degrees of normality will prevail, and this is no different in the rental market student or otherwise.
“The very promising signs are that currently, many boroughs are experiencing massive demand for student rental properties, and this bodes very well for the academic year ahead. Foreign student demand, in particular, can bring very favourable levels of rent for buy-to-let landlords. We regularly have students from China and other areas of Asia renting at well above the average in their chosen areas to ensure they secure the best property they can while studying.”
Description
Data Point
Source or Workings
Number of UK higher education students
2,383,970
London Higher
Number of students studying at 39 HE providers in London
386,000
London Higher
London Students as a Percentage of UK total
16%
Number of overseas students (Other EU and Non-EU) in London
122,000
London Higher
Percentage of International Students in relation to London total
32%
Overseas student total as a percentage of all London students
Average monthly London student rent
£702
Save the Student
Total rent paid by all students each month
£270,972,000
Monthly rent multiplied by the number of London students
Total rent paid by international students each month
£85,644,000
Monthly rent multiplied by the number of international students
Expected Covid-19 drop in student numbers
24%
KCL
Forecast number of total students after drop
293,360
Total number of London students reduced by 24%
Forecast number of international students after drop
92,720
Based on international students accounting for 32% of total students
Decline in monthly student rental income as a result of drop
-£65,033,280
Total Rental income reduced by 24%
Decline in monthly international student rental income as a result of drop
-£20,554,560
Based on international students accounting for 32% of total students
Table shows the level of student rental properties already let as a percentage of total student properties listed.
The cost of renting increased across six out of eight regions of the UK – with particularly strong increases in the North East and East Midlands, Goodlord’s rental index has found.
In July the typical cost of renting was £838.24 in the North East, up from £652.61 in June.
The East Midlands also saw a rise of 17% increase, with rents rising from £795.24 in June to £961.34 in July.
The only regions where rents didn’t increase were the West Midlands (0%) and Wales (-5%).
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Tom Mundy, chief operating officer at Goodlord, said: “July’s numbers confirm that the post-lockdown bounce we were expecting was more than a flash in the pan.
“The market has found its feet once more and is retaining momentum. Comparisons to 2019 data are highly encouraging; showing a return to predicted levels of activity and, in some instances, exceeding expectations.
“In addition, rental prices and void periods both bode well for the sector as we head into August, which is also a traditionally busy month for the industry.”
Plymouth is the most renter-friendly city due to its low unemployment rate of 2.8%, and its low crime levels (59.4 cases per 1,000 people) and affordable rents, research from Insulation Express has found.
Only 32% of the average renter’s income is spent on rent – making it easier to save for a deposit.
In terms of affordability, Derby is the best city with tenants spending just over 1/5 (22%) of their wage on rent, followed by Sunderland who spend nearly 1/4 (23%.)
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London tenants face the most financial strain, spending nearly 2/3 (64%) of their salary on rent, followed by Reading where tenants spend almost 1/2 (49%) of their income on rent.
Belfast has seen the highest annual rent price rise of 2.2%, whereas comparatively, Sunderland and Newcastle Upon Tyne have seen the lowest – at just 0.5%.
Manchester has the highest crime rate, with a staggering 164.1 offenses per 1,000 people (16%).
Lettings market activity in June was significantly higher than the same month last year, the Rental Index from Goodlord has shown.
After number of new tenancy applications were received during May, June saw that demand translate into completed lets.
The number of completed lets stayed above 2019 averages for all but six days of June, marking an extremely busy month for the industry.
The cost of renting rose by 3% across the England and Wales between May and June.
Void periods also dropped in five out of eight regions.
Tom Mundy, chief operating officer at Goodlord, said: “If May was characterised by a release of pent up market demand, then June was that demand translating into action.
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“The numbers throughout the month were incredibly impressive and show how hard the industry has been working to serve as many tenants and landlords as possible.
“We saw an unprecedented number of lets completed each day in June. It’s therefore no surprise to see those levels of demand starting to affect average rental costs and void periods.”
The biggest rent rise was seen in the South West, which saw average prices increase by 11% – from £859 per month to £965.
Wales wasn’t far behind, posting a 9% rise in average rental costs.
The average salary of a UK renter dipped slightly month-on-month, from £25,068 to £24,613.
The UK’s rental market has started to rebound after falling between March and April, Goodlord’s Lettings Activity Tracker has found.
Between April 12th and May 7th new applications rose by 45% and completed tenancies by 22%.
Between March 17th, when initial lockdown measures came into effect, and April 14th, the number of new tenancy applications plummeted by 72%, reducing market activity by three-quarters compared to the same period in 2019.
Tom Mundy, chief operating officer of Goodlord, said: “The last month has been intensely difficult for letting agents.
“The steep decline we saw in new and completed tenancy applications was unprecedented in modern history.
“However, there are now some glimmers of hope. The numbers are showing early signs of levelling out.
“If this proves true, retaining this subsistence level of demand will prove vital to agents when it comes to surviving the duration of social distancing restrictions, as will their ability to pivot to a fully remote offering.”
He added: “If they are able to weather a few more weeks, we are predicting a much more significant rebound for the market once restrictions on moving house are lifted.
“Many moves will be on hold right now, meaning demand is building up each week with some already trickly through, as we can see.
“As with any downturn, sales will be hit harder than lettings, as people delay getting their foot onto the property ladder and remain renting instead.
“For the agents that can go the distance, there will be a chance to claw back some of their losses once restrictions are lifted.”
Average UK rental yield currently sits at 3.5%, a marginal decline from the 3.6% registered prior to the COVID-19 pandemic, according to research by lettings management platform Howsy.
Even with the obstacles facing the current market, there are still buy-to-let (BTL) pockets providing strong returns for landlords.
Bradford has the highest average yield at 10%, with Gwynedd (6.2%) and North Down (6%) following behind.
Other areas that rank highly are Glasgow, Liverpool, Preston, West Dunbartonshire, North Lanarkshire, Forest Heath and Manchester.
At the other end of the scale, Malvern Hills, Kensington and Chelsea and Chiltern have the worst average yields at 2.3%.
The largest increase in average yields has been in North West Leicestershire, up 1.4% during the pandemic.
Arun, Corby and West Norfolk have also seen increases of 0.8%, while North Dorest and Newark and Sherwood have had an uplift of 0.7%.
Kettering, Derby, Breckland and Falkirk are also among the top 10 for largest rental yield uplifts during the pandemic.
Rhondda Cynon Taf, York, Gedling, Chiltern and the Vale of Glamorgan, however, have seen the largest declines, between 1% and 3.5%.
Calum Brannan, founder and CEO of Howsy, said: “The current lockdown has seen the government introduce measures such as buy-to-let mortgage holidays and a ban on tenant evictions and this has understandably caused many buy-to-let investors to hesitate.
“But despite this overall air of market uncertainty, tenants still need to find rental properties and so it continues to be business as usual for many landlords and those agents who have adapted to a more digital mode of operations.
“There’s also still a large number of areas where potential and existing landlords can secure favourable yields much higher than the national average, with some areas still seeing an uplift in yields despite the spread of the coronavirus.
“As the nationwide lockdown continues to drag on, there may be another silver lining for buy-to-let investors.
“Should the property market see prices fall, the cost of investing will be lower, boosting profit margins in a sector that has had it tough of late due to government squeezes on profitability.”
The coronavirus crunch is yet to translate into delayed rental payments but agents are warning that there is still tenant confusion about whether they are obliged to pay.
Analysis of 20,000 lettings by Goodlord, which helps landlords and agents automate tenancy contracts and record payments, found only 2% more properties than usual – an increase from 4% to 6% – are behind on rent since March 11th.
This is based on rent being more than seven days late.
Goodlord also reported that claims from landlords against its rent protection insurance policies remain below 1% of rented properties covered.
However, a survey by Goodlord with 124 lettings agents alongside this research found 84% have reported confusion amongst tenants, with many not realising they remain under obligation to pay rent.
Of those surveyed, 70% said that they have agreed payment plans with less than 10% of tenants so far.
Another 40% letting agents noted that the landlords they work with are being particularly supportive and are working with tenants to address rent payment plans, rent reductions, or supporting late payment plans where necessary.
There have been calls from tenant groups for the Government to introduce rent waivers.
Landlords can apply for buy-to-let mortgage payment deferrals if renters are in difficulty but these are not compulsory.
Tom Mundy, chief operating officer at Goodlord, said: “Despite only being a month since lockdown began, the late payment figures for the rental industry are so far fairly steady.
“They show that the overwhelming majority of tenants are still able to meet their obligations and we believe the Government’s furlough scheme will no doubt be playing a key role in this continuity.
“At the same time, agents and landlords are gearing up to offer more support in the months to come.
“Many agents, along with their landlords, are thinking about how they can offer flexibility, support, and guidance to tenants who might start to struggle.”
