Buy-to-let landlords in the UK rental market continue to experience unprecedented levels of demand for their rental homes. Where does this leave the homeownership dream?
The latest figures on the UK rental sector have revealed another record rise in rents, with a 9.2% leap between March 2023 and March 2024. This is the biggest jump rental prices have seen since 2015, and follows an ongoing trend for rents rising faster than UK house prices in some areas.
The Office for National Statistics (ONS) report revealed that average rents in Great Britain are now £1,200 per month in the private rented sector. Of course, the greater the level of demand and competition, the more prices tend to be pushed upwards, and this seems to be what is happening in the sector.
Other factors are at play, too, including landlords upping rents to recoup the costs of higher mortgage rates. Some landlords are also reported to have sold up, meaning less available stock for tenants to choose from.
Yet another factor that could also play a part is the fact that people continue to step onto the property ladder later in life than they would have done in years gone by. While for some this is down to affordability – the difficulty of saving for a deposit and affording the higher mortgage rates – others are foregoing the idea of becoming homeowners altogether.
Is homeownership less appealing?
As mentioned, higher interest rates and mortgage affordability will certainly be affecting people’s ability to move from the UK rental market to the housing ladder. While lenders have brought rates down since the start of this year, the market is still waiting for significant falls which are expected to come when the base rate is lowered from 5.25%.
House prices can also be another issue, despite recent headlines of “falling” values. In fact, according to Rightmove, the average asking price is now just £570 lower than the record high last May of £372,894. Further to this, ONS figures show that the average home still costs £50,000 more now than it did in January 2020, which supports the notion that what we are experiencing now is a correction rather than a fall.
While there have been many incentives for first-time buyers in recent years, such as stamp duty cuts and government schemes including Help To Buy and Shared Ownership, getting onto the housing ladder still requires help from family for many buyers due to the sheer cost of housing in the UK compared to average salaries for young people.
This is particularly the case in London, which is a city with a huge number of private tenants. For many, moving to London as a graduate and sharing with friends is a rite of passage, and it can offer perks that homeownership does not. This includes more flexibility, being able to share more easily with friends, and less responsibility and financial commitment.
And the UK rental market is more enticing
Standards in the private rented sector continue to improve, meaning it offers a more appealing lifestyle than it once did. The recent passing of the Renters Reform Bill is likely to further raise the bar in a number of ways, offering greater protection for tenants in UK rental homes.
There has also been a huge rise in the niche build-to-rent sector, where institutional investors invest in purpose-built rental developments designed to offer more than the average buy-to-let. It tends to involve newly built housing with additional amenities such as a concierge service, a gym, communal areas and social spaces, to create a sense of community.
While build-to-rent is somewhat separate to the traditional buy-to-let space, it is believed that it is prompting an overall boost in standards in the general UK rental sector, as tenants come to expect more from their properties, and landlords compete with build-to-rent offerings. This has led to more landlords investing in newer, more high-spec rental homes.
The appeal of living in a rental property that is well-located, close to jobs, transport and amenities, and with a high-quality finish and added extras, can mean tenants stay put for longer, and increasingly put off homeownership which might mean moving to a less appealing location and a lower quality property.
The German and Swiss housing models
While the UK has long since had a major focus on homeownership, with this often being prioritised over the UK rental market by the government, things are very different in some European countries, where renting is seen as much more acceptable as a long-term – or permanent – option.
Switzerland and Germany both have the highest proportion of renters to homeowners in the world: in Switzerland, an estimated 68% of people live in rented accommodation, while in Germany the figure is around 64%, according to a Statista Global Consumer Survey (2021).
Meanwhile, around 44% of people live in UK rental homes (including both private and social housing), with 56% owning their homes (with or without a mortgage).
In Germany, the average tenant stays in their rental home for around 11 years, and the average tenant is around 50 years old, according to one IPPR study. By contrast, tenants in the UK rental market only stay in their homes an average of 2.5 years. However, the average age of a UK tenant according to the latest statistics was 41 in 2021/2022, which is higher than it once was.
The ongoing high tenant demand in the UK rental sector, alongside a rise in the average age that people are becoming homeowners, could well lead to a shift in the balance between tenants and property owners in this country – particularly if what’s on offer from landlords continues to improve.
If you’re looking to invest in a rental property in one of the UK’s most sought after areas for tenants, get in touch with BuyAssociation today, and browse some of our current opportunities. Read more UK property news here.
