Rental market has felt COVID impact

The latest rental price data from the Office for National Statistics (ONS) lays bare the impact COVID has had on the UK’s rental market.

Rental market has felt COVID impact

Ian Workman is managing director of commercial banking at Recognise Bank

The latest rental price data from the Office for National Statistics (ONS) lays bare the impact COVID has had on the UK’s rental market.

According to the Index of Private Housing Rental Prices, in the 12 months up to the end of December, the East Midlands region saw the greatest growth in rental prices in England during 2021, an increase of 3.3%.

In contrast, the traditional hot spot of London saw negative growth, a 0.1% fall in rental prices.

Overall, if you exclude London, England saw a 2.8% increase in rental prices in 2021. In addition to the East Midlands, the big growth areas were the East of England (up 3.2%), the South West (up 3.1%) and the North West (3%). Scotland also saw significant growth, with a 2.3% rise in rental prices, while rents in Northern Ireland soared by 5%.

The data reveals the changing shape of the UK rental market, primarily driven by the impact of COVID, as tenants move out of the cities and bigger urban areas, often in search of somewhere quieter, more rural, or in the case of the South West, a home near to the coast.

The growth in homeworking means many people have cut down on their commuting, giving them more freedom in where they want to base themselves and the local amenities they desire, while the first lockdown in particular saw families moving out of the cities in search of somewhere bigger.

Not only has this shift in tenant behaviour affected rents, it also has a direct impact on property prices. For landlords and property investors it presents another set of variables they need to consider in their search for new properties and the funding required to purchase them.

Changes in recent years to stamp duty and taxation have made it increasingly unattractive for smaller buyers to invest in the buy-to-let sector.

This reshaping of the geography of the rental market, along with other pressures on landlords such as changes to the Energy Performance Certificate (EPC) regime, will make it even more unappealing and will likely increase the number of professional investors.

Personally, I think this professionalisation of the buy-to-let market is a good thing because it will improve both the quality of housing stock, and therefore the experience of tenants, as well as the expertise of borrowers seeking funding.

At Recognise Bank we’ve seen a clear move in this direction, which is one of the main reasons we launched our Professional Buy-to-Let product last year.

It was also why we partnered with property tech innovator Rent Chief soon after launch to give landlords and property investors free access to a range of tools that will help them in their research of individual properties, areas and regions.

It’s always been important do your homework when buying a property, but now, more than ever, it is vital that borrowers research possible rental income, yield and potential increases in capital value when considering properties to buy.

Using Rent Chief’s Property Investment Calculator, landlords punch in the purchase price and rental amount to find out important data about a new or existing property, such as gross yield and return on investment.

This is of utmost importance at the moment for new borrowers or people planning to re-finance property because, following December’s surprise increase in the bank of England Base Rate, we are likely to see further rises this year.

Getting a good idea of potential rental income and yields will be vital for borrowers working out the affordability criteria of individual properties.

It will also help them select the most suitable buy-to-let loan, as we are already seeing an increase in borrowers opting for fixed-rate deals.

Our website also offers free access to Rent Chief’s Local Research Tool to help borrowers make an informed decision about a potential property investment and its location.

By entering the postcode, the tool provides valuable information about the property, including recent house sale prices, as well as details of nearby properties for sale or rent.

As the ONS data shows, getting the latest insight on property trends and regional performance will be vital in helping landlords to identify the best locations in terms of renter demand and investment opportunity.

Another reason we partnered with Rent Chief is that its founder, Patrick Shuker, is steeped in both the mortgage market, having previously co-founded the mortgage sourcing and compliance system, TrigoldCrystal, as well as being a property investor himself, so he knows exactly the challenges landlords face.

While there have been quite a few changes in the rental market over the last couple of years, I think there is probably more to come.

Although city centres like London may have a taken a hit in recent times, the increase in Permitted Development Rights projects, where commercial and office space is being repurposed into residential developments, could lead to a resurgence in young professionals returning to the bright lights of big cities.

Importantly, there is still a lack of housing stock in the UK and government targets for new builds have been consistently missed, so the role of property investors and private landlords is still vital, and the sector will continue to be buoyant.

However, the challenges for investors will also remain significant, and that’s why borrowers need to equip themselves with the right research tools, the right funding options and the best broker and lending partners to ensure their property portfolios are as robust as possible.