Rental Increases At A Near Record High, But Is There A Mixed Outlook For The Rental Market?

Hello Readers,

What a lot of headlines we've recently had! The UK economy expanded by 0.6% in Q2, inflation is up to 2.2% but being less than expected and we’re seeing investors dropping bets that there will be a big FED rate cut as US inflation drops to 2.9%.

Here’s the bad news however. I have been reading in the Financial Times how news that the economy grew by 0.6% have led to investors increasing bets on the Bank of England holding rates at the next meeting in September.

There is still expectation of a 0.25 percentage point cut before the end of the year however, so we will have to see!

Onto the property market and I wanted to highlight something of a good news story for landlords as the latest data highlights that rental price growth is close to a record high.

The latest ONS data on house and rental prices released on 14th August highlights that rental price growth has remained unchanged, sitting at 8.6%, close to the record annual high of 9.6% back in March.

This comes after three months of marginal declines and continues to serve how broken the UK housing market is, with a continued shortage of rental properties available to meet demand.

Indeed, Chief Executive of Propertymark Nathan Emerson commented on how the UK rental market is continuing “to feel the harsh reality of ongoing pressures on housing demand, which are outstripping current supply”.

If you take a look at the table, published by the Financial Times , you will see how stark the increase to rental rates is compared to house prices. It’s quite an uptick!

Whilst this is on a national level, let’s look at some more local data using ONS stats and here’s how Medway compared to England and the south east over the past two years and you’ll see how there’s really been an increase over the past few months.

Looking at the UK property market, something I have been reading is how the next big landlords are likely to be pension funds as opposed to small landlords. Despite the current challenges around legislation and increased cost, the above demonstrates a strong market, driven by excellent demand.

But what will tomorrow’s market look like?

With Labour’s pledge to get Britain building, pension funds might be tomorrow’s landlords through the build to rent sector. For example, Charlie Bryant (main image), CEO of Zoopla’s parent company Houseful explains how:

“potential returns from alternative investments, whether that is bonds, the equity market or, frankly, putting your money with National Savings and Investments, and the attractiveness of owning a rental property as an individual private landlord, buying it for yield, is not there.”

“[and] undoubtedly the next iteration [of the rental market] is, particularly with potential planning changes, will be larger, more corporate institutional landlords, under the build-to-rent guise.”

In addition, I have been reading about how Blackstone has recently sold 3,000 homes worth ￡405mn to the UK’s biggest pension fund; the Universities Superannuation Scheme. This is interesting because I think we are likely to see more deals like this in the coming years.

Why would I be sharing this with you? This is because as investors, we have two ways to look at the market.

The first is to say, “buy to let is dead, I’m selling up and putting my money elsewhere”. Certainly, for those who own properties in their own name I can understand this due to the Section 24 changes.

The second is to say “property is an excellent way of building wealth amongst a diverse strategy. I’m in it for the long term and the current market challenges represent opportunities for the future.”

I think that where smaller landlords go wrong is that they don’t have the right viewpoint. Perhaps they don’t see their investment as running a business, in the sense of keeping up with rental prices, legislation etc. Or perhaps they see property with a short term lens and being their only investment avenue.

It’s important to remember that property is an investment not a get rich quick scheme. For those looking to buy and hold, it’s only really after five or ten years that you start to realise some strong returns.

Do I think buy-to-let is dead? No, but I certainly wish private rental sector landlords were not demonised in the way our government likes to!

I’d be interested to hear your thoughts.

Hasan