Average annual UK rental growth up by 8.3% in 2021

Those looking for buy-to-let investment opportunities in the UK will be interested in the latest Rental Market report released by Zoopla, which has recapped the performance of the rental market over the last 12 months.

According to the index, the average annual rental growth across the UK reached 8.3% in 2021. A sharp rise in demand in Q4 saw rents on new lettings increase by 3.7%, with city centres experiencing the highest climbs due to a renewed interest for centralised properties from renters. Compared to average rents before the pandemic, rents have increased by £62 per calendar month (PCM), with the average cost of renting across the UK now standing at £969 PCM.

Commenting on the report, Gráinne Gilmore, Head of Research at Zoopla, said: “Rental demand has risen strongly amid increased activity in city centres, but supply is still constrained, leading to the fastest growth in rents in Q4 than at any time over the last 13 years.” With demand for rental at a record-high, the experts at Surrenden Invest have highlighted their main findings from Zoopla’s index to help investors and landlords make the most out of their rental property investments in 2022.

For the latest breakdown of the best regional hotspots for buy-to-let opportunities, visit the City Guide section of our website, where you can download our new range of insights and reports.

London leads the way for rental growth

Over the course of last year, London witnessed the highest annual rental growth, with the cost of new lettings increasing by 10.3%.

Despite annual headline figures, significant falls across 2021 caused by the pandemic mean that average rental costs increased by £18 PCM since March 2020. Data from Zoopla shows that rents increased in London from an average of £1,622 PCM in March 2020 to £1,640 PCM in December 2021.

An increase in the number of people returning to the workplaces has seen annual rents increase in inner cities like London, outpacing the growth rate in commuter zones for the first time since the pandemic. However, the rising cost of renting a property will put off many renters who previously relocated and have adjusted to more affordable living costs outside of the capital.

Due to the higher cost of buying property in London, buy-to-let investors are likely to find lower entry-level and high yielding opportunities in one of Surrenden Invest’s post-pandemic commuter belt property hotspots.

Demand for city centre rental property surges

The performance of regional cities continues to paint a positive picture for property investors, with demand for centrally located rental homes surging following the ease in Covid-19 restrictions.

Zoopla reported rents increased in every region and country in the UK in 2021. Excluding London, the average rental cost was up by 7.5% across the course of the year. With a sharp bounce-back in demand for city-centre rental accommodation due to the reopening of offices, the return of university students, and most global travel restrictions uplifted, pent-up demand has caused a rapid rise in rental costs.

According to the report, demand for rental property increased by 76% in January compared to tenant interest during similar periods between 2018 and 2021. Regional cities with the highest recorded rental climbs include economic hubs, with Surrenden Invest’s selection of 2022 property hotspots experiencing impressive growth.

Spotlight on top regional performers

Those keeping an eye on regional trends are likely to be encouraged by their performance of the UK’s rental market as a whole, with popular investment locations including Yorkshire and the Humber (+8.5%), West Midlands (+8.6%), and the North West (+8%) all posting a more robust growth than the UK average excluding London (+7.5%).

Delving deeper into the performance of individual cities, annual changes in rents were particularly strong in Manchester (+9.5) and Birmingham (9.4%), emphasising the demand for housing in critical economic hubs that boast good employment prospects. Popular university cities including Nottingham (+10.6%), Sheffield (+6.6%), Newcastle (+6.3%), and Liverpool (+6%) also reported positive rental growth year-on-year.

Commenting on the latest Zoopla Rental Index, Jonathan Stephens, Director of Surrenden Invest, said:

“It is safe to say that the UK’s property market experienced a shift in demand throughout the pandemic. The freedom of working from home saw a change in what tenants wanted and needed from their living space – namely, square footage and green space. Although this way of life will continue to suit some people, many returning to the workplace are gearing up to re-join the hustle and bustle of city-centre living.

“When it comes to rental yields and high occupancy rates, it is clear that city-centre property will continue to attract tenants who have essentially put their lives on hold during the pandemic. Investors should therefore consider the significance of the location of their next rental property investment and affordability levels in 2022 to secure high occupancy levels.”

If deciding on a location for your next rental property investment is holding you back, contact the experts at Surrenden Invest who will help you determine the best option for your circumstances.

Is it time for landlords to increase rents?

As demand for rental property continues to outstrip the number of available options on the market, rents are likely to remain buoyant due to competition from private tenants. For landlords with tenants already in place, Zoopla has advised that despite the New Year bounce-back from renters, the demand peak has begun to ease in February, indicating that less competition will reduce the scale of rental growth across the next 12 months.

Affordability levels also remain a concern for renters so, if you’re considering increasing the monthly price of your rental property, it is worth researching the local market before re-listing. Instead, savvy landlords may wish to renegotiate longer tenancies with existing tenants in a bid to secure higher occupancy levels.

Outlook for the year ahead

Good news for buy-to-let investors, Zoopla forecasts rents to continue to climb throughout 2022 – albeit at a slower pace than in the last 12 months. Although seasonal trends and affordability constraints are likely to see tenants stay put in their current housing, the record level of demand for rental property will ease in 2022.

The rate of rental growth is set to reach 4.5% across the UK, excluding London, and 3.5% in London. For those investing in buy-to-let property, stable and rising rents remain one of the most attractive reasons to enter the UK’s real estate market, providing steady yields year after year.

Investors looking at the broader property market will also be interested in rising property values across the UK, with the house prices in January 20229.7% higher when compared to the previous year, according to the Halifax House Price Index.

With rising rental values and the ability for property owners to secure increasing levels of equity, the outlook for property investors remains strong.