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The latest report from the Office of National Statistics, published in October, confirms that the South West saw the highest annual growth in private rental prices in the UK, whilst London saw the lowest. A number of industry providers also confirm that rental price inflation in the South West has generally been between 8-10 % over the last 12 months.
Homelet (a provider of insurance reference services to a number of agents) also reports that the average rent for new tenancies in the South West in 2021 has risen to £960 per calendar month (pcm) from £910 in 2020 and £840 in 2019. Average rental for new tenancies in the South West has increased by 7.6%. Stags’ figures also confirm this trend, with the average increase in managed lets being 11.9% and the average increase in let only/tenant find lets being 9.9%. Stags’ average rent for our whole portfolio now stands at £910pcm, an increase of £70 in the last 12 months.
Andrew Luxton MRICS FARLA, explains that there have been a number of factors affecting the current level of rents:
The tenant demand has significantly increased as a result of the COVID pandemic with a significant increase in the volume of people that wish to relocate to the South West. This has been coupled with an increase in people working from home and tenants looking for properties with extra space both inside and outside. In addition, house prices have continued to rise significantly making it harder for first time buyers to purchase a property and as a result many of those have turned to the rental option in the first instance.
Supply of Rental Property
The increased demand has been coupled by a reduction of the supply of rental property coming to the market. Pre-COVID, the number of new rental properties or those looking for a buy-to-let investment had reduced following changes to the tax regime, a 3% surcharge on stamp duty for second homes and a reducing ability to offset mortgage interest payments against rental income. In addition, the compliance and regulations that landlords are required to adhere to has also increased and therefore many investor landlords reviewed their options. As a result of the COVID pandemic, the number of rental properties coming to the market has reduced due to tenants remaining in properties for longer periods and average tenancy lengths increasing. This has therefore reduced the number of re-let properties which would normally come to the market on a regular basis. Some landlords have also taken the opportunity to take advantage of the buoyant sales market and sell their rental property rather than considering rental as a continuing or alternative option. All these factors have led to a reduction in the supply of property coming to the rental market. During the pandemic period, Stags has generally had an available register of properties a third of the size they would have had pre-COVID.
A combination of increased demand and reduced supply will ultimately result in increasing rents, and it is unlikely that they will change significantly in the short term. With both annual rental yields and capital yields increasing there has actually never been a better time to let a property.
For those landlords with existing tenancies there is also a balance to be achieved between maintaining a good tenancy and tenant but also receiving a reasonable market rent and investment return. Therefore, it is important to regularly review rents and we would suggest rents are reviewed on an annual basis even if a rental increase is not proposed. It is always best to review and increase rent little and often rather than leaving for a significant period and then requiring a larger jump in rents, which could be difficult for a tenant to meet and adjust to. The rent review process is a service which is included within our full management service but is also something that can be provided for all our let only/ tenant find landlords with the necessary paperwork and addendum to the tenancy agreement created.
For any advice with regards to the management of your tenancy, current rents and details on the rent review process then do not hesitate to contact us.