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Will London Rents Recover After Covid?

Inner London bore the brunt of the pandemic’s impact on the rental market which saw a decade of rental growth wiped out. In previous downturns, Inner London has typically been the region to lead the rest of the country. But this time around it was the only area where rents fell for 13 consecutive months, while rents in other regions reached record highs. However, it appears that late spring marked the bottom of the Inner London market.

For the first time since April 2020, the average rent in Inner London rose on a monthly basis, averaging £2,103 pcm in June 2021 (chart 1). While the average rental home in Inner London costs 16.5 per cent or £415 pcm less than it did this time last year, rents jumped 4.3 per cent month-on-month between May and June, the largest monthly increase on record. June was also the third straight month that the annual decline in rents slowed.

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The reversal in the direction of rental growth has been driven by more tenants returning to the capital. Last month, the number of tenants registering to rent in Inner London was up 16 per cent on June 2020 levels and up 45 per cent on June 2019. Zone 2 recorded the strongest growth in demand, but this has been almost completely driven by domestic, rather than international tenants. Here, the share of tenants coming from outside the capital doubled as more people planned their return to London.

Rising rents have also been supported by lower stock levels, a reversal of the months following the height of the pandemic when landlords struggled to find long-term tenants for their short-term lets. While back in September 2020 there were 14 per cent more homes available to rent in Inner London than in September 2019, by June there were 8 per cent fewer homes to rent than two years ago. Family houses are most scarce, while entry level flats make up most of the homes taking more than a week to let.

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In contrast to Inner London, Outer London rents recorded only six months of falls on an annual basis following the onset of the pandemic. Outer London rents have grown for the last 10 months, with June’s annual rental growth (9.4 per cent) the strongest on record. The average rental home in Outer London now stands at £1,685 pcm,10 per cent more than it did when the pandemic started in March 2020.

Across Great Britain the pace of rental growth continued to climb in June, with rents rising 8.5 per cent year-on-year. In fact, four of the 10 fastest months for rental growth over the last decade have been since the onset of the pandemic. Stock scarcity has become a pressing issue, with 46 per cent fewer homes on the market than at the same time two years ago. In rural and suburban areas, the drop in rental homes on the market has been even greater.

Outside London, rents rose 10.9 per cent annually – the fastest rate of growth recorded during any time since 2014. Six regions saw rental growth hit double digits in June, up from five in May. Last month eight of the 11 GB regions recorded the biggest annual increases since the lettings index began in 2014. Wales, the West Midlands and London were the only regions not to register record rental growth.

Aneisha Beveridge, head of research at Hamptons, said: “Over the course of the pandemic, Inner London landlords have suffered more than investors anywhere else in the country. But in recent months rental growth here has changed course and is now on an upward trajectory. We are forecasting that rents in Inner London will return to pre-pandemic levels within 12 months.

She added: “That said, and despite a recovery, rents in Inner London are likely to remain lower than they would have been had the pandemic not happened. A relatively buoyant recovery has ensued as restrictions have been lifted, but some scarring is likely to remain as tenants become less closely bound to their office desk and international travellers remain in short supply. Nationally, the last 12 months have seen five years of pre-pandemic growth squeezed into a year. Rents are rising at such a pace that monthly rental growth figures could, in more normal times, be mistaken for annual ones. While this growth is underpinned by a lack of stock, it will ultimately be tapered by affordability.”

BY PETE CARVILL

Source: Property Wire

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Average UK rent jumped 4% in the last year – HomeLet

The average UK rent jumped 4 per cent in the last year, according to statistics just released by Homelet, and now stands at £997 per month.

The company also found that every region apart from London saw an increase in recent prices year on year. Within the capital, rents dropped by 0.9 per cent. Meanwhile, the average price across the country is up by 6.4 per cent year on year, now reaching an average of £864 per month.

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Andy Halstead, chief executive officer of HomeLet, said: “We’ve seen from sharp house price spikes across the country that the Coronavirus pandemic changed what Britons are looking for in a property. Many said to be looking for properties offering more living space; for those working from home as an example, that’s also the case in the private rented sector. Rental properties continue to play a crucial role in meeting the demands of people up and down the country, and the flexibility and responsiveness shown by the private rental sector will be vital in the coming months as the country opens up again. As rents increase, we’ve also seen an increase of over 10 per cent in suspicious and fraudulent applications for let property; with backlogs and delays in processing evictions, the demand for high-quality tenant reference and insurances has never been higher.”

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He added: “The overwhelming success of the vaccination drive brings hope that returning to some form of normality could be on the horizon. However, we would still caution that millions could be made unemployed at the end of the furlough scheme – posing considerable problems in tandem with an unbalanced rental market. Whilst the Government looks to stimulate homeownership, the importance of the private rented sector can’t be understated and should not be overlooked.”

BY PETE CARVILL

Source: Property Wire

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New Mortgages for Energy Efficient Rental Properties

Paragon Bank has launched a range of buy-to-let mortgages with lower interest rates for energy efficient properties.

The 80% LTV mortgages charge a market-leading 3.99% interest, fixed for five years, exclusively for rental properties which earn an energy performance certificate (EPC) of A to C. The loans can be used for the purchase and remortgages of self-contained properties and houses in multiple occupation (HMO).

The lender hopes the new mortgages will encourage landlords to invest in the energy efficiency of their properties.

The number of properties in the private rental sector with an EPC of A to C has increased 272% over the past decade to 1.8 million. However, around six and ten homes in the sector still are at a grade D or lower.

Energy inefficient properties are expensive for tenants to heat and frequently dangerously cold. A government survey of the country’s housing stock has found that homes below an energy efficiency ratio (EER) of C cost an average of £500 more to heat each year than properties that achieve a C or better. Those high costs leave a disproportionate number of private tenants in fuel poverty—25% in England, compared to 10% across the wider population.

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The most energy inefficient rental properties are on average 2⁰C colder in winter than the most efficient homes, posing risk to tenant health.

Inefficient rentals are also responsible for high levels of carbon emissions. Nationally, energy use in homes account for around 14% of the UK’s greenhouse gas emissions and any pathway to net zero requires investment in insulation, double and triple glazing and low-carbon heating systems in homes.

Under proposed regulations, which the government began consulting on last autumn, all homes in the private rented sector will need a minimum EPC grade of C or better for new tenancies by 2025. All privately rental properties will need to achieve that grade by 2028.

Richard Rowntree, managing director of mortgages at Paragon Bank, said: “Landlords have made great strides in adding more energy efficient homes to the PRS – or upgrading properties to C or above standard—over the past decade. However, more needs to be done as the Government moves towards its net zero carbon target by 2050 and landlords have a key role to play in that.

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“Our new range of products at 80% LTV for homes with an energy rating of C or above will be an incentive for landlords to add energy efficient homes to the sector, benefitting tenants through lower energy bills and the environment through reduced consumption.”

Landlords, along with other homeowners, were extended some help in upgrading their properties with the government’s Green Homes Grant scheme. The initiative offered homeowners up to £5k to cover two-thirds of the cost of energy efficiency upgrades. However, the project was dogged by difficulties and was shuttered prematurely at the end of March, having issued just 28,000 vouchers for work and seen just 5,800 energy efficiency measures installed.

Source: Money Expert

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Rental growth reaches a record 8.0% outside London

Rental growth outside London has hit 8.0%, the highest figure ever recorded by the Hamptons monthly letting index.

The cost of renting rose by 10.6% in the South East, the first time the region has entered into double-digit growth.

Rental growth nationally has been fuelled by a lack of stock – 300,000 fewer properties have come onto the rental market since the onset of the pandemic (March 2020 to February 2021), nearly a fifth less than during the preceding 12 months.

Aneisha Beveridge, head of research at Hamptons, said: “This year we’ve seen a sharp decline in the number of rental homes coming onto the market. Would-be tenants are now faced with significantly less choice, which in turn is pushing up rents.

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“And with many landlords having multiple offers on the table, half of investors have been able to increase the rent they charge.

“Rental stock levels have also been hit with the onset of the pandemic causing investors to hold back. This has been compounded by emergency legislation which saw landlords having to extend a tenant’s notice period to a minimum of six months, reducing turnover further.

“At the same time, many renters who were looking to buy had to put their plans on ice and continue renting, as banks sought larger deposits for house purchases.”

Rents in inner London, where demand has been decimated by the pandemic, have fallen by 17.7% to £2,185.

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division

However in Outer London rents grew 5.3% annually, suggesting expensive areas where rents have fallen the most.

Beveridge added: “Over the last five months, and in an effort to beat the original stamp duty deadline of the end of March, landlord purchases started to rise, which will add to stock levels when these homes complete.

“Meanwhile the government announced a new Mortgage Guarantee Scheme in the Budget which is aimed at helping would-be buyers with small deposits, many of whom are currently renting. Both factors, alongside the ending of the eviction ban in April, mean rental stock levels may have bottomed out.”

BY RYAN BEMBRIDGE

Source: Property Wire

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Rents shoot up in South of England

The cost of renting has risen in the South of England outside London, research from Homlet shows.

Rents have risen by 10% to £942 in the South West, by 7.7% in the East of England to £983, and by 6.1% in the South East to £1,085.

The cost of renting has fallen by 4.5% in London to £1,556, signalling people moving out of the city.

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Andy Halstead, chief executive of HomeLet, said: “At a national level the latest data shows a continuation of the trends we’ve seen emerging since the national lockdown ended, with rents for new tenancies increasing across the UK, with the exception of London.”

“In the regions surrounding London, the annualised variations in rental values for new tenancies looks significant, especially in the South West (10%), East of England (7.7%) and South East (6.1%). In reality this is a theme that we’ve seen grow gradually month on month, since July 2020.

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“In the South West average rents are now £83 per month higher than the same time last year. The upward pressure on the regions around the capital, particularly commuter towns, is coming from a broad range of tenants looking for more space, both inside and outside the property.

“The trends we’ve seen in the past 12 months highlight the responsiveness of the private rented sector, and the crucial role it plays in supporting the changing needs of a significant proportion of households in the UK.”

BY RYAN BEMBRIDGE

Source: Property Wire

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Rents Are Rising In Rural Areas

Rents for new lets increased in the year to October, but only in rural locations, Hamptons International has reported.

Its November Monthly Lettings Index put the annual rise across the whole of Great Britain at 1.4 per cent, and the average monthly rent for newly let residential properties at £1,041. The increase was the first annual rise indicated by the index since March 2020.

But the figure masks sharp differences between rural areas, where rents were 5.5 per cent higher in October than a year ago, and cities, where they were 5.3 per cent lower.

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‘This is due to a shift in tenant demand, with more renters looking to live in the country rather than cities’, said Hamptons. ‘As a result, there were 29 per cent more homes available to rent in cities and 48 per cent fewer to rent in the country during October than at the same time last year’.

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Rental growth accelerated across Great Britain in all regions apart from London, down 0.6 per cent, and Wales, down 4 per cent, Hamptons reported. ‘Rents in London fell for the eighth consecutive month in October as the gap between rental growth in Inner London, down 14.9 per cent, and Outer London, up 3.3 per cent, widened to the largest differential on record’.

The biggest rental growth was seen in the North of England and the South West where rent were up by 5.9 per cent year-on-year. Rents in the North reached a record high of £689 per calendar month.

Source: Residential Landlord

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Rental Market Buoyant Except In London

Rents in London have fallen during the Coronavirus pandemic, property portal Zoopla has reported. However, London is the exception and rents risen in a buoyant rental market across the UK as a whole, it said.

‘Average rents in London have fallen by 5.2 per cent over the last 12 months, reaching levels last seen in 2014’, Zoopla found. It puts this down to ‘new working patterns and lack of tourism during pandemic’.

In contrast, rents increased outside London by 1.7 per cent and rental has increased by a fifth over last year – strong demand that is being driven by a squeeze on lending to potential first-time buyers, said Zoopla.

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‘At the same time, supply remains constrained with levels of investment in buy to let still reduced following the changes to Stamp Duty (the additional 3 per cent surcharge on second properties) and the wider tax regime introduced from 2016 onwards’.

Renters are showing increasing interest in larger properties, especially those that may have access to outside space.

‘The search for space, first seen in the sales market, is now being firmly replicated by renters. Zoopla’s top searches for rental properties include the terms gardens, parking, garages, balconies and pets, reflecting a need for outdoor space and freedom necessary to cope with lockdown. There is also evidence that while the market as a whole is moving more quickly, the market for rented houses is moving more quickly than that for rented flats, reflecting this desire for more space among renters’.

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‘For most of the UK, the demand/supply gap is underpinning moderate levels of rental growth’, said Zoopla head of research Gráinne Gilmore.

‘The split in the rental market caused by COVID-19 has now crystallised and we are seeing the two-speed market firmly entrenched.

‘We haven’t seen the exodus of students from cities and, as more people are staying in the rental market given the squeeze on mortgage lending, higher levels of demand will continue to underpin rents. At the same time however, muted earnings growth will start to limit the headroom for rental growth in some markets.

‘The search for additional space, both indoor and outdoor, within the rental sector is also set to continue as the country goes through additional periods of lockdown’

Source: Residential Landlord

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Landlords report strongest tenant demand since 2016

The North West and South West of England experienced the strongest levels of tenant demand in a period which has seen the most buoyant growth since 2016.

A survey by buy-to-let lender Paragon Bank revealed tenant demand hit a four-year high in Q3 of 2020 with 29% of landlords reporting rising interest from renters during this period.

This was the highest number of respondents reporting increased demand since the third quarter of 2016 and came as one in ten of the 700 landlords quizzed reported ‘significant growth’.

But it was in the regions of the North West and South West where rental numbers were most buoyant with the survey finding 44% of landlords had seen a growth. This was closely followed by the East Midlands where 40% of landlords reported higher demand from tenants.

In Central London, meanwhile, just 16% of landlords saw growth in the last three months. Growth was slightly stronger in outer London areas, with a quarter of landlords recording rising demand.

Richard Rowntree, managing director of mortgages at Paragon Bank, said the record levels of tenant demand being reported by the likes of Rightmove and Zoopla when the housing market reopened in May had started to feed through to landlords as tenants reassessed where and how they wanted to live.

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Central London, he explained, was seeing the impact of Airbnb-style landlords moving property into long-term lettings, as well as a desire for larger properties.

Rowntree continued: “Outside of London, demand is buoyant from the East of England, where 27% of landlords are reporting growth in demand, to the North East and South West, where nearly half of respondents are telling us they are seeing positive growth.”

He added: “We expect this to continue for the foreseeable future and there’s a number of factors we’re seeing at play.

“For example, there’s been growth in homeowners taking advantage of strong prices and selling to move into rented, people are looking to secure a new home ahead of entering a potential second lockdown, whilst students left it late to secure property for the new academic year.”

By Kate Saines

Source: Mortgage Finance Gazette

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The South West leads the way on rent rises

The South West of England is the leading UK region when it comes to rent increases, as they were 6.6% higher in September than the same month last year.

HomeLet’s Rental Index shows that rents averaged at £902 in the South West in September 2020, up from £846 in September 2019.

There were also strong annual increases in the North East (4.3%), East of England (4.3%) and the North West (4.2%), considering the year we’ve had.

At the other end of the spectrum, Greater London saw rents fall by -2.8%, while they also decreased by -2.4% in Northern Ireland.

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Martin Totty, chief executive at HomeLet, said: “Whilst it’s undoubtedly the case many landlords are being supportive of their tenants and agreeing temporary reductions or deferrals, it will be encouraging for them to see rents agreed on new tenancies, in almost all parts of the country, are continuing to hold up and generally edge forward.

“This is likely because tenant demand remains strong whilst supply may be a little more constrained if some landlords are selling into a stronger sales market, even if that could be a short term phenomenon. It also doesn`t help tenants much if, for them, the prospect of securing first time mortgage finance remains as elusive as ever.

“So, those landlords committed to the sector for the long term and having shown their willingness to confront the multiple headwinds of: taxation change; new regulatory requirements; and, in certain circumstances, longer notice periods to gain possession of their properties, may still be rewarded for their flexibility and their perseverance with reasonable returns on their investment risk.”

BY RYAN BEMBRIDGE

Source: Property Wire

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Best boroughs for student rental demand

Benham and Reeves, has revealed the best boroughs for student rental demand, despite predictions of a rental market decline due to a lower level of students heading to the capital. London’s higher education providers accommodate 16% of the UK’s university students each year, and as many as 32% of the capital’s students come from overseas.

The average London student pays £702 a month in rent, meaning those on a three-year course will pay out £8,424 a year, totalling more than £25,000 throughout their course.

This means the capital’s student body brings in nearly £271m to London’s rental market in rent each month, with international students accounting for £85.6m of it.

However, with COVID-19 causing travel restrictions and broader health implications for universities, it’s predicted that the number of students heading to London this term will drop by as much as -24%.

That’s a loss of over £65m a month for the London student rental sector, but despite this prediction, many areas of London are still experiencing extremely high levels of demand for student accommodation, something that will be welcome news to student landlords across the capital.

According to the research by Benham and Reeves, the number of student-specific rental properties that have already been snapped up by students sits at 22% of all student-specific properties listed on the rental market.

However, in Merton, this ratio is far higher, with 80% of all student accommodation already let agreed.

Bromley (75%), Bexley (61%), Barking and Dagenham (60%), Hounslow (53%), Harrow (53%) and Redbridge (50%) are also seeing high levels of current student demand for rental properties.

Even in more expensive markets such as Hammersmith and Fulham, Islington and Camden, student rental demand is sitting at 19% to 25%.

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Director of Benham and Reeves, Marc von Grundherr, commented: “There is currently an evident decline in the level of rental demand from students than we might otherwise expect at this time of year. This has, of course, been driven by a lower number of international students looking for properties due to the travel restrictions and other hurdles that the current pandemic has presented.

“However, while predictions of student rental market losses are rather eye-watering, to say the least, we don’t believe this will be an issue that plagues the market for long.

“Many current students are beginning their studies in a virtual capacity until such time they can make a move to London, and once they do, we should see a further influx of demand for suitable student lets.

“University is very much about the life experience you gain from actually moving to a new city or country. With London still offering some of the best standards of higher education you can find worldwide it’s unlikely students will refrain from this first-hand experience unless absolutely necessary.

“Like many areas of life this year, we may see a slow start to the university year. But as life develops to deal with COVID-19, greater degrees of normality will prevail, and this is no different in the rental market student or otherwise.

“The very promising signs are that currently, many boroughs are experiencing massive demand for student rental properties, and this bodes very well for the academic year ahead. Foreign student demand, in particular, can bring very favourable levels of rent for buy-to-let landlords. We regularly have students from China and other areas of Asia renting at well above the average in their chosen areas to ensure they secure the best property they can while studying.”

DescriptionData PointSource or Workings
Number of UK higher education students2,383,970London Higher
Number of students studying at 39 HE providers in London386,000London Higher
London Students as a Percentage of UK total16% 
Number of overseas students (Other EU and Non-EU) in London122,000London Higher
Percentage of International Students in relation to London total32%Overseas student total as a percentage of all London students
Average monthly London student rent£702Save the Student
Total rent paid by all students each month£270,972,000Monthly rent multiplied by the number of London students
Total rent paid by international students each month£85,644,000Monthly rent multiplied by the number of international students
Expected Covid-19 drop in student numbers24%KCL
Forecast number of total students after drop293,360Total number of London students reduced by 24%
Forecast number of international students after drop92,720Based on international students accounting for 32% of total students
Decline in monthly student rental income as a result of drop-£65,033,280Total Rental income reduced by 24%
Decline in monthly international student rental income as a result of drop-£20,554,560Based on international students accounting for 32% of total students
Table shows the level of student rental properties already let as a percentage of total student properties listed.
LocationCurrent Demand for Student Rentals
Merton80%
Bromley75%
Bexley61%
Barking and Dagenham60%
Hounslow53%
Harrow53%
Redbridge50%
Waltham Forest44%
Greenwich42%
Kingston upon Thames37%
Lewisham34%
Wandsworth34%
Sutton33%
Croydon31%
Richmond upon Thames28%
Haringey27%
Hammersmith and Fulham25%
Ealing25%
Islington23%
Brent22%
Southwark21%
Hackney21%
Newham20%
Hillingdon20%
Camden19%
Lambeth18%
City of London18%
Barnet15%
Tower Hamlets13%
Kensington and Chelsea11%
Westminster10%
Enfield0%
Havering0%
London22%
Source: Rightmove

Source: Property118