How Quickly are Rents Rising?
A lot of the more recent news coverage regarding the property market has been concentrated on prices rising and falling rather than the overall health of the property investment market.
In many ways, it’s understandable that a lot of the focus is taken up by prices, given that it’s often a good indicator of a growing or struggling economy as so much of the middle class’ wealth is held in property.
That being said, there’s a danger that, certainly in the investment market, there is an overreaction to some fairly normal fluctuations in the national and international markets.
Certainly, if the wider context is taken into consideration then this is to be expected to some degree – the level at which prices increased between 2020 and 2022 was 20% or more in some places, which provides an average yearly increase of just under 10% in the UK.
That, most understand, isn’t a normal price increase and, in fact, in most normal years we’d expect around half that. So a slowdown, a pause, or even a small drop is perfectly understandable following years of huge activity.
With that in mind, some of the measures we can look at to see what the market is looking like for investors are rental growth and rental yields.
How quickly are rents rising?
As we know, inflation is running very high by historical standards, however, wages have failed to keep pace until now. The latest economic figures show that wages are now starting to increase higher than normal and there’s a logical conclusion to be made that this will also lead to higher rental demand too.
Furthermore, house building simply isn’t anywhere near where it would need to be to dilute some of this demand for rental property.
Finally, it’s worth considering that tax breaks and government incentives aren’t quite what they used to be for new landlords, and so there’s been a small but not unnoticeable drop-off in new rental properties available.
All this adds up to a picture where there is a vast and growing gap between supply and demand and, as we know, in the most basic economic terms a lack of supply will increase price inflation.
According to the BBC, rents are rising quicker now than at any other time in the past 10 years. In a recent article, they said “It means people are spending more of their wages on rent than at any other time in the last 10 years, according to property portal Zoopla.
Average rents for new lets have also risen, jumping 10.4% in a year. Rents have been growing faster than wages in the UK for nearly two years, according to the data, to which the BBC has been given exclusive access.”
Overall, the picture that this creates is one with growing rents but either static or slightly dropping house prices, which means that rental yields (the rental income as a % of the value of the property per year) are increasing, which is a fairly standard measure of how successful your property investment is.
With that in mind, those looking to get into property investment to make a quick profit will be disappointed, but those in it for a long-term, secure and growing investment will still be able to get exactly what they need.
If the latter is of interest to you, why not get in touch with us today to find out more about our current investment opportunities?
