UK Rental Market Update: Insights into the Current Landscape

Welcome to our Property Market blog, where we provide you with comprehensive insights into the current trends shaping the UK housing market. In this edition, we'll dive into key headlines of the current Rental Market - including supply and demand dynamics, challenges faced by investors, rental growth versus earnings, and regional snapshots. Let's explore the latest findings!

 

- Annual rental inflation for new lets in the UK remains high at an average of 11%, slightly down from 12.3% in mid-2022.

- Rental growth continues to outpace earnings growth, raising concerns about affordability for renters.

- The demand for rental properties remains significantly higher than the five-year average, while the supply of privately rented homes in Great Britain has seen a minimal 1% increase over five years.

 

Supply and Demand Imbalance:

- The stock of homes available for rent is 33% below the five-year average, highlighting the significant supply and demand imbalance.

- According to the recent ARLA Propertymark Report, the demand for rental properties recorded by member agents in April 2023 was 24% higher than the previous year, further exacerbating the supply shortage.

- Factors such as rapid growth in overseas students and high net immigration contribute to sustained demand for rental properties. This follows the Government shake-up of Visa rules in 2021 to help attract more skilled workers to the UK.

 

Challenges for Investors:

- The number of privately rented homes has only increased by 1% since 2016, as new investment is offset by properties leaving the rental sector.

- Tax changes, growing regulations, higher borrowing costs, and tighter lending criteria have prompted landlords to reassess their portfolios and investment strategies.

- Mortgage rates have increased, impacting the equity or deposit levels required for new buy-to-let purchases, along with stricter lending criteria and stress tests.

 

Rental Growth and Existing Tenancies:

- Existing tenancies have seen rental increases at an average of 4.4%, significantly lower than the market average for new tenancies.

- Landlords are encouraged to review their rents periodically, especially considering challenges such as tax changes and higher mortgage rates, as rent increases can positively impact investments.

 

Breakdown of the Private Rental Market:

- The core private rented sector, comprising long-term lets, accounts for 66% of the market, offering lower hassle and workload.

- Sub-sectors such as holiday and short lets or HMOs may provide higher yields but come with additional costs, workload, and regulations.

 

Regional Snapshot:

- In the West Midlands region, average rents have seen a year-on-year increase of just under 10%, with Birmingham ranking among the top five cities for rental growth.

- Manchester, Edinburgh, Glasgow, and Nottingham also demonstrate strong growth in rental prices.

 

Conclusion:

The UK rental market continues to experience robust demand, outpacing earnings growth and raising concerns about affordability. The supply shortage persists, presenting challenges for both tenants and landlords. Investors face changing dynamics, including higher mortgage rates and stricter lending criteria. Regular rent reviews are encouraged to ensure investments remain financially viable.

Thank you for reading our Rental Market Update blog. If you are a landlord or property investor and would like some advice or to share your views, please contact me anytime...

 

Ali Durrant MARLA

Director of Concentric Sales & Lettings 

ali@concentricproperty.co.uk

What Is The Rental And Property Investing Market Like In Liverpool Right Now?

We have let thousands of tenancies, worked with hundreds of investors, and managed hundreds of properties, helping landlords navigate the local Selective Licensing schemes since their inception in 2015.

Like tenants, landlords and investors come in all shapes and sizes, have different levels of experience, and have different wants and needs, but there are a few questions that we get asked all of the time, and right now, it seems like everyone wants to buy property in Liverpool and the surrounding areas... and I can see why.

We have been instrumental in letting property in and around the west of Liverpool for over 10 years now, our focus; to work with the landlord investors in the area.

We have let thousands of tenancies, worked with hundreds of investors, and managed hundreds of properties, helping landlords navigate the local Selective Licensing schemes since their inception in 2015.

Like tenants, landlords and investors come in all shapes and sizes, have different levels of experience, and have different wants and needs, but there are a few questions that we get asked all of the time, and right now, it seems like everyone wants to buy property in Liverpool and the surrounding areas... and I can see why.

There's a lot of investment opportunity in the area with great property prices compared to many other city locations, and will generate fantastic income (and now capital) returns.

So, if you are thinking of buying a property in the area, here are a few questions you should be asking yourself.

 

What are the most in-demand areas from tenants at the moment?

The top areas that are most in-demand from tenants right now are Bootle, Walton & Fazakerly.

 

What sort of property cannot you get enough of? 

There appears to be a real shortage of 2/3 bedroom houses, maybe because people want more space or a place to work from home, we have all experienced being locked in, and a 1 bed flat can become less desirable. 

 

Where are most investors looking to buy at the moment? 

Most Investors are looking to buy property in Bootle & Walton, which ties in nicely with the increased tenant demands we are seeing. 

 

What rent increase levels have YOU seen in the branch? 

With rents across the UK increasing on average by 8.5% (according to Homelet), we have seen rents across the board here increase by at least 10% over the last year and in some cases a lot more! 

 

What property price increases have you seen in your area?

According to the Liverpool Echo, Liverpool has the fastest rising house prices of any UK city. This year is set to be the busiest for the UK housing market since 2007, with Liverpool topping the house price charts at 10.6% and some areas such as Toxteth maxing out at over 20% in just 12 months.

 

Are unfurnished properties renting better than furnished? 

We find that most properties rent better if they are unfurnished, that is unless they are a house share or student accommodation, then of course furnished is best.

 

What are the key features tenants are asking for right now?

Of course they still want the usual, a good location that feels safe, a nicely presented property that’s clean and has good access to facilities and transport, but this year we have seen a rise in tenants asking for gardens, and to be allowed pets (probably due to the experience of lockdown), and with HMO’s they really do all want en-suite facilities (due to becoming more germ aware). 

 

How many applications from tenants are you getting per property?

During most of 2021, we were seeing around 10 applications from tenants per property, however, this year it has more than doubled, we seem to currently (January and February) be getting up to 25 pre-applications for each property, it's gone crazy!

 

If you were looking to buy a property right now Elisha, what would you buy?

If I was to buy a property now, I would definitely be looking to secure a 3-bedroom terraced house for around £130k, generating me a monthly rent of around £750pcm which results in a 7% gross yield, because I know I could rent it over and over again with zero problems and get good quality tenants.

 

What sort of landlords are buying at the moment?

It seems all types of landlords are buying at the moment, from 1st-time landlords, those with 1 or 2 properties looking to expand their portfolio and large landlords alike, it feels like everyone is buying right now, it’s a very busy market, driven in the main by the huge increase in demand and the shortage of stock out there.

 

What’s the big challenge for the Liverpool market at the moment?

It has to be the introduction of another Selective Licensing scheme across Liverpool from April 2022. This is going to be an additional cost and more paperwork for those landlords in the areas affected, but we have been through this before with Sefton, so we are ready to support our landlords through it.

If you have any queries regarding any of the subjects covered in this article or want to learn how the introduction of the new Selective Licensing laws could effect you as a landlord in the Liverpool area, we're running and inviting you to a free-to-attend webinar on the 23rd March 2022 at 18:30. On the webinar, we will cover all the nitty-gritty details you should 100% be aware of.

Register for the webinar on the next page.

How To Get Better Tenants

Who is your perfect tenant?

Let’s think about how we define our perfect tenant. It might differ from landlord to landlord and will depend on what’s important to you. You’ll also consider the type of property you own and the area you’re in – for example, is it a HMO? Are you located in a city centre full of professionals? Or is it an area popular with families?

The type of person you are able to target will determine how you categorise them, such as:

Nice to meet you

The best way to get a feel for a prospective tenant is to actually meet them. As humans, we have an in-built ability to make hundreds of judgments based on seeing and talking to another human being, so what better way to get an idea of whether a person is right for your property?

This creates the opportunity to ask them questions about their situation, such as their reasons for moving, past rental situations, their jobs, and even their hobbies. It’s a great way to get a feel for who they are in a more natural and less formal way.

Don’t make promises at this stage, though. It’s perfectly ok for you to tell them that you’re not ready to make a decision yet and that you’ll be in touch, especially if you’re not getting a good vibe from them. You don’t have to take the first tenant you meet – in fact, you probably shouldn’t.

Check them out

Make sure that you do all the proper checks. Having a credit check, verifying their income, and immigration checks, will all determine whether they are the right tenant for you, and whether they can afford to pay their rent. However, be careful not to discriminate – letting things like race or colour, religion, or even benefit claims cloud your judgement is a big mistake, and as well as being unfair, is illegal.

Something else you might consider; using Google. Many people use social media, whether that’s Facebook, Twitter, or Instagram, and it’s surprising what you can find out about a person just by searching their name. It’s a useful tool if you want to make sure that the person applying to rent your property is right for you, as you can often get a good feel for their background, friends and opinions, which could all give you an indication of how they will be as a tenant.

Go with your gut

Above all, trust your instincts. If you want better tenants, it really is worth making the effort to meet them, talk to them, and don’t be afraid to do a bit of basic research into their background. Ask questions, and take the time to get a real feel for who they are. And be brave enough to admit if you don’t like them – there’s absolutely nothing wrong with admitting they are not a good fit for you, and looking for someone who is. So many landlords are in such a rush to get someone into their property that they just sign up the first person who takes an interest – and then have regrets when they create problems in not maintaining the property, or worse still causing damage or complaints.

Hopefully, this post has given you a little bit more confidence to go out there and seek out your perfect tenant. Making that little bit of extra effort can save you so much heartache in the long term.

Paperwork-Paperwork-Paperwork

I was talking to a landlord at a networking event last week, and he was explaining that he has no idea what all the fuss is about, and how he gets his files and move ins done in just 10 minutes, why on earth would he consider outsourcing this function?

This perplexed, me, because i know the high level of administration required to stay compliant, so i could not resist digging a bit further to see what it was he was doing in his 10 minute let file prep. He explained how he has used the same tenancy agreement for the last 10 years, and he has never had a problem with it, he doesn’t take deposits (he just takes rent in advance instead and uses that as a deposit) and the referencing consists of a letter from their employer that they bring in for him.

In my position its quite difficult to turn a blind eye, to such errors in paperwork handling, so i’m afraid i could stop myself from getting into a rather lengthy conversation about how he “should” be doing the pre move in paperwork... the problem is, that this is a conversation, i am having every week, to varying degrees with landlords across the country.

From a landlords perspective the increasing burden of paperwork is becoming quite a chore, and i can see why many have decided to take no or little notice of the new rules, but the fines, prosecutions and potential criminal offences are getting heavier and more severe, so landlords really do need to take note.

With the frequent changes in legislation, tenancy agreements need to be changed at least once a year, with fraudulent applicants on the rise, trying to get around the latest immigration act rules, references need to be sought direct from a verified employer and if a payment is to be treated like a deposit then in law it is a deposit and should be protected like one, but that is just the beginning.

We have a motto in our office, that says that “If they file is right the management is right” and it is so true, if you put satisfactory care and attention into referencing the tenant, checking the property ad getting all the safety elements in place and ensuring the legals are up to date and in order, the rest of the property management element certainly becomes a lot easier.

So what is involved in setting up a tenancy file? Our checklist for our staff consists of 56 items, but to list the main ones, they are

In addition making sure the keys are issued, and the tenant has instruction books for all appliances in the property and then you will be good to go.

I’m no genius but to do all of that in 10 minutes, would be quite a challenge, in my opinion, so a good process is required for all landlords and agents to make sure that all is in order from the outset, so that when it comes to issues later on, it is much easier to resolve with the proper paperwork in place

Taking the de-regulation bill alone, just the failing to log the issuing of the How to Rent Guide, can stop a landlord being able to issue a section 21, and the potential financial issue this, could run into literally thousands.

So in brief, in order to stay safe, its all about the paperwork, now more than it ever has been before, in the past, landlords may have been able to “wing it” but not any more. Agents will have to be better, landlords will have to be better, or else they will for sure be suffering rather severe consequences

All landlords proposed to check tenants Rights to rent under new Immigration rules

In December 2014, the government launched a pilot scheme in the Midlands and Birmingham areas making landlords responsible to check that any tenants moving into a property or living in a property of theirs had a legal right to rent a property in the UK under Immigration Act 2014. In august 2015, an announcement was made that this scheme would be rolled out nationally and apply to every landlord in the country.

What this means is that every landlord has to be sure that their tenant is who they say they are and carries the correct permissions to live in the country for the time contracted, this policy has proven to be very controversial as landlords will be liable to civil penalty if they get this wrong and it has added an additional burden of paperwork on the already struggling sector. 

A number of concerns have been raised by the sector in the day to day operation of this new rule for example ref the expectations upon private landlords and agents alike to be experts in checking documents, potential discrimination of foriegn tenants, all things that landlords have never had to consider before. There was also a promise of “landlords will not be expected to evict” that was initially made which now seems to have been revoked, all this lead to a promise of “light touch” enforcement from the immigration office, and in practice it does seemed to have gone smoothly, but more changes are afoot. 

Under Section 22 of the Immigration Act 2014, landlords “must not authorise an adult to occupy premises under a residential tenancy agreement if the adult is disqualified as a result of their immigration status.” The legislation does not apply to those under 18 or those not renting the property as their main home, although the Home Office’s code of practice on the civil penalty scheme does recommend assuming the property is being let as a main home if there is any doubt

In order to check a tenant’s immigration status, landlords will need to view original immigration documents in the presence (or via live video link) of the applicant, make copies of the documents, and keep the copies for 12 months after the tenancy expires. The checks can take place no more than 28 days before the commencement of the tenancy agreement. 

The code of practice sets out a list of acceptable documents to prove a tenant’s right to rent, including UK, Swiss or EEA passports (current or expired), a biometric immigration document, or a residence card. For applicants whose immigration documents are held by the Home Office and are therefore not available, the Home Office has created a Landlords Checking Service. This online tool will provide an answer as to the applicant’s right to rent. If no answer is received from the service within 48 hours, the landlord will have a statutory excuse against liability for a penalty

If a check shows a tenant has unlimited right to rent, the landlord will not be required to carry out further checks prior to any subsequent tenancy renewals. If, however, the tenant has limited right to rent, landlords will have to carry out repeat checks. For example, if a tenant has leave to remain until 1 July 2018, their right to rent will expire on that date as well, and it will be the responsibility of the landlord to carry out additional checks before that date. For tenants with limited leave to remain, they only need to demonstrate their eligibility on the commencement date of the tenancy agreement; the landlord will have a statutory excuse for a year. Even if the tenant’s leave expires a day after the agreement is commenced, no follow-up checks will be required in the first year.

If a follow-up check indicates an occupier no longer has the right to rent, landlords will be required to report this to the Home Office “as soon as reasonably practical”. However, once this report has been made the landlord is under no obligation to evict the occupier. 

With regards to new tenants, landlords are under no obligation to report an applicant having no right to rent to the Home Office, provided they do not allow them to occupy the property. If a landlord rents to a person with no right to rent, or does not report the expiration of an occupier’s limited right to rent, they will be liable for a civil penalty. 

The penalties for a breach of regulation range from £80 for a one off first offence to £3000 per illegal occupant for repeat or multiple breaches, so consideration needs to be given as to how as landlords and agents we monitor this ongoing

However, On 3 August 2015, Greg Clark, Secretary of State for Communities and Local Government, announced that new measures for evicting tenants with an expired right to rent would be included in the forthcoming Immigration Bill: 

“Measures in the forthcoming Immigration Bill will go further, and will enable landlords to evict illegal immigrant tenants more easily, by giving them the means to end a tenancy when a person’s leave to remain in the UK ends - in some circumstances without a court order. This will be triggered by a notice issued by the Home Office confirming that the tenant no longer has the right to rent in the UK. The landlord would then be expected to take action to ensure that the illegal immigrant tenant or occupant leaves the property”.

On 3 August 2015, the Government announced that the forthcoming Immigration Bill would amend further the rules around right to rent when it is rolled out, with landlords who persistently failed to carry out checks facing up to a possible five years imprisonment. It was also announced that the Bill would include measures to make eviction of tenants without a right to rent easier.