Rents are breaking records despite prices dropping

Rents are breaking records despite prices dropping

After years of substantial house price growth in the UK in recent times, house prices have begun to slow after months of economic uncertainty – but despite this, rents are breaking records.

None of us will have been able to avoid the economic news in recent months, with issues facing the UK and other countries related to inflation, the cost of living, energy prices and political uncertainty, and there will inevitably be ripples of that into the UK property investment market.

For the casual observer, it probably comes across quite a lot more doom-laden than it really is for landlords and UK property investment participants.

Most of the coverage, understandably, relates to the residential market, the impact of interest rates on residential property owners and what it means for people looking to buy for the first time or indeed those looking to move house.

If we widen our scope in that regard and look at all aspects of the UK property investment market, then things aren’t quite that bad and, truth be told, the longer-term prospects for the residential market are going to be fine too.

Rents are breaking records

What lies beneath what we’re saying here then? Well, most are indeed expecting property prices to fall over the short term, but let’s not forget the wider context of property prices shooting up by 20% over the pandemic years, so even if prices fall 10% this year they’re still 10% higher than pre-pandemic levels.

Secondly, as noted by Julia Kollewe and Mabel Banfield-Nwachi in the Guardian, rents are growing at a record rate, partly due to demand and partly due to lack of supply.

According to the data cited, “Average private monthly rents reached a record high of £1,162 this quarter as tenant demand far outstripped the supply of homes to let, forcing more people to downsize to studio flats, according to the property website Rightmove.

The average advertised rent in Greater London, of £2,343, was 16.1% higher than a year ago, the highest rate of growth of any region on record. However, some cities and towns have faced even more significant annual rises: 22.2% in Newbury, 20.5% in Manchester, 19.6% in Cardiff, 18% in Edinburgh and 17.6% in Birmingham.”

Rents, yields and prices

It’s tempting for some investors to look at headline price changes and either rejoice or get glum, but experienced property investors and landlords involved in UK property investment know that it only tells a marginal story about investment performance.

Yields are usually the most important metric that we find our UK property investment clients measure their property portfolios by.

By yields, we mean the percentage of the value of the property that it brings in annual rental income. For example, a £100,000 property that earns £10,000 rent has a 10% yield.

If we’re seeing asset prices dip but rental incomes increase, this has an upward pressure on property yields, so when UK property investment clients are battling inflationary pressures on their wealth, then highly performing rental incomes are an excellent way to protect that wealth.

So, whilst things may look bleak in the mainstream news, things are far from bad in the UK property investment market.

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