Demand for property in the private rental market is showing no signs of slowing down, and this is placing upward pressure on rental values.
With demand for new rental properties rising faster than supply, there is a growing disparity between demand and supply across many parts of the country, helping to fuel a rise in average rents, which are up 1.21% year-on-year, according to the latest Landbay Rental Index.
Given that home ownerships levels are continuing to fall, a growing number of people are unsurprisingly relying on the private rented sector for accommodation, illustrated by growth in demand for rental properties.
The buy-to-let sector’s ‘safe haven’ status among investors has long made it a wealth magnet for property investment. However, the government’s decision to introduce a 3% buy-to-let surcharge on stamp duty from April 2016 and phase out tax relief on buy-to-let mortgage interest has deterred many landlords from acquiring new properties, contributing to the notable decline in the number of new rental properties placed on the letting market in some parts of the country.
Many experts believe that the number of landlords is likely to plateau or even drop over the next few years, as property investors start to feel the pinch from a series of tax measures that have already been introduced.
But as new supply moderates and demand strengthens, Landbay expect to see continued upwards pressure on rental values in the UK, which are now at a record-high of £761 a month outside of London, the rental index shows.
Growth in rental values means that rental payments in the UK now account for over half - 52% - of the average disposable income.
In London, almost 89% of disposable income is spent on rent, now standing at an average of £1,879 per month.
John Goodall, CEO and founder of Landbay said: “Rents have continued to rise over the last five years, increasing by 9% across the UK since March 2013 and by 7% in London – with monthly payments remaining a burden on those struggling to save.
“Tenants saving up for a house face a triple challenge with more and more of their income spent on rent, partnered with trying to catch up with the pace of house price inflation and record low interest rates limiting their ability to save money.
“There has been much speculation about the long-term future of the buy to let sector from an investment perspective, however, demand remains strong as brokers would attest. Not a day goes by when there isn’t more news about the supply-demand mismatch in the UK housing sector and until this is resolved, tenants will continue to rely on the private rented sector to support them.