Current Rental Market Performance

publication date: May 30, 2012
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

Current Rental Market Performance

There are three main monthly rental indices, one quarterly and several indices and research papers which measure specific markets, such as the student market and room rents, which help to explain the current rental market in detail.

Rental Indices Comparisons

Rental Indices Comparison

The rental indices are often more useful for landlords and tenants than property price indices are for buyers, sellers and investors as average rents do not vary as much as they do between property price surveys. The main reason for any difference typically depends on how much data is based on London rental prices as opposed to the rest of the UK.

Overall, rents are typically averaging around £700-£800 per month with the higher end being more London centric. Across most UK cities, you can get a decent property for around £500 per month, but you'd be paying at least £800 per month to rent a property outright in and around London. Currently, rents are showing small monthly rises in some areas and small falls in others, giving a relatively stable picture and suggesting the worries of huge rent rises for 2012 were falsely founded.

Rental Trends for 2012

In 2011 there was a lot of hysteria around rent rises when the reality was rents were just recovering from falls of up to 20% back in 2008 and 2009. As rent levels are tied to what is happening with wages, many more tenants are trying to negotiate rent levels than before as the money they have left at the end of the month is being squeezed by government cuts coupled with the impact of inflation. In addition, although demand for rental properties is rising, we are also seeing an increase in the number of rental properties available, as such we are currently seeing rents flat lining in most areas.

One new trend which is emerging, is tenants are being quite choosey about what they are willing to pay for. Unlike the outdated view of landlords being multi-millionaires who don't care about their tenants and rent damp, mouldy hovels, today's landlords are very different. Most landlords today are ‘mom and pop' landlords who have bought properties to rent out until their kids are ready to move in or they can be sold to help fund another property for them to buy. As a result, they are typically in good areas, some brand new city centre apartments, and as they are investing for their kids' future, the properties are well maintained with good landlords who sometimes even treat their tenants as well as they would if their kids were living in the properties!

From a tenant's perspective they are looking for a home now, not just ‘temporary' accommodation. This better rental stock and rising tenant's expectations means some properties are starting to rent out faster and at better rates than others. For the first time, bad landlords who don't take care of the tenant and the property aren't benefiting as much from increased rents and worst still, are increasingly likely to suffer longer voids too - potentially causing a cashflow nightmare.  This is good news for both tenants and landlords as it means landlords who do a good job are rewarded with better income while those that provide poor accommodation continue to receive worse returns, perhaps encouraging them to change their ways in the future.

Room Rents

A growing trend over the last few years is to rent a room. This is partly due to higher quality room rents coming onto the market, both from institutional investment in say, student accommodation, to room rents aimed at professionals who would perhaps prefer to rent part rather than all of a property.

From a rent a room perspective, rents for tenants are looking pretty good. Easyroommate has a great rental index which is produced for each UK city they have data for. This suggests room rents average between £300-£400 per month (about £70-90 per week), with London hitting a height of around £550 per month (£130 per week). The good news for renters is these current averages are anything from 10% less than this time last year to up to 20% in the likes of Nottingham.

This drop in average room rates is likely to be due to the attraction of renting rooms to landlords from a yield perspective which is resulting in an increased supply. Average rental yields for a whole property in the UK is around 5-6%, whereas by renting rooms instead, landlords can secure rental yields of between 10-15%, almost doubling gross yields. It is important to be aware though that some room rentals if they become ‘homes in multiple occupation' (HMOs), they need to be licensed by the local authority. There is no longer a standard definition of a licensed HMO, so it's important to check this with your local housing officer. It is also essential to understand that although gross yields are great when you rent rooms, you have to measure the return based on profit ie net yield, as the running, maintenance and set up costs are a lot more than renting out a whole flat or house.

Also read - Past Rental Market Performance and Rental Market Outlook


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