The UK’s rental market has performed extremely well for a long time. In the current circumstances where many are experiencing uncertainty – including existing and potential new investors – the continual growth in rents and rental demand in the UK is a point of positivity and reassurance.
A quick look at history shows us how the market reached its current state. The private rented sector (PRS) is the fastest growing tenure in the UK and the number of people renting privately has more than doubled in England since 2001 and now makes up more than 20% of all properties according to the Office for National Statistics.
There are many reasons for this, but a collapse in home ownership is one of the most important causes. More than five million households are now renting, and home ownership rates have fallen in turn to just over 62%.
Now, with a cost of living crisis making it increasingly difficult for many to buy their own homes, the rental sector is set to continue growing more quickly than it ever has before. The rise and rise of the UK rental market is well underway and it is a great time to invest in property to make the most of the opportunity.
The unaffordability of buying has caused rents to rise in the UK by an average of more than 10% year-on-year for 15 months in a row according to the latest Zoopla reports. The Office for National Statistics has confirmed this with reports in June that rents are rising faster across the UK than at any point since 2016. When the London market is removed from consideration, rents are rising at a faster rate than they have at any time since 2006.
This is driven by a lack of supply. Fewer people than normal are leaving the market due to higher mortgage rates which means that fewer properties are becoming available to new renters or existing renters who are trying to move. In turn, this means that competition for rental properties is higher and rents are going up.
With the Bank of England raising rates to 5.25% this August, it is likely that mortgage rates will keep increasing as the unaffordability issue gets worse.
This begs the question – if mortgage rates are so high that they are keeping people in the rental market for longer, how can investors justify buying when the rates are the same for them?
The answer is to consider investing in off-plan property – or to put it another way, buying a property which is in construction now and will be finished in the future. There are many advantages to doing so, but two stand out for investors in 2023 looking to make the most of a booming rental market while avoiding the pitfalls of the current property market.
The first major advantage of buying off-plan property is that you can secure a below-market price today with a small deposit and pay the balance in the future when it is expected that mortgage rates will go down again. This insulates you against current market costs and ensures that you get a property despite them.
You will also start earning capital appreciation on the property straight away and through the course of the construction process, meaning that you will already have made a profit when it completes. The same forces that have kept pushing rents up – lack of supply of housing – are also pushing property values higher even as mortgage rates increase.
The UK rental market has grown for years and there is a lot more to come. Record rental increases have been recorded so far in 2023 and more is anticipated over the rest of the year and into the future beyond that.
Buying off-plan is a fantastic way to make the most of the market, lock in the present day gains and get all of the advantages in the future too.