It’s becoming difficult to see an end to the recent price hikes that have been causing a cost-of-living crisis. Yet another interest rate rise has just been announced by the Bank of England, causing inflation to reach a record high of 9.1% and predicted to reach 11% by the end of the year. Two of the main contributors to these changes are fuel and energy costs, with food pushing the shifts as well.
In terms of the property market, it has been incredibly competitive as demand outpaced supply, and many homes have been snapped up incredibly quickly, some without even having a viewing. But as tenants face the largest private rental price increases in 5 years, there’s some good news for landlords and buy-to-let investors.
What is rental inflation?
Inflation is the rate at which consumer goods and services become more expensive. This applies to the property market with asking prices and rents rising to keep up with inflation and neutralise the growing costs across the whole supply chain. For example, as a landlord, you may find that it now costs you more to hire a heating engineer to fix a boiler at your property than it did a year or two ago, or your mortgage repayments have gone up. So, to absorb the extra costs, you raise your monthly rent.
The main reasons for inflation are rising production costs and a flood of demand for certain products and services, meaning that people are willing to pay more for them, and so prices go up. Typically, this follows a cyclical trend whereby prices will grow due to increased demand to a point where affordability comes to a halt, causing a recession. Once there’s some economic recovery, the cycle restarts.
How have prices changed in different areas?
According to letting insurance company HomeLet, the average monthly rent in the UK reached £1,103 in May 2022. That’s an annual increase of more than 10%. On a regional level, London holds the top spot for the highest rents in the country as well as the largest price growth, with the average monthly rent now standing at £1,832. That’s nearly 16% higher than this time last year and 1.6% higher than the previous month.
The list below shows the annual rent increases across all UK regions:
|Region||Avg monthly rent||% change vs 2021|
|Yorkshire & Humberside||£757||8.6%|
|East of England||£1,062||6.1%|
With many home seekers making a move out London during the pandemic, it’s unsurprising to see northern regions stack up high on the list. Towns like Manchester and Birmingham grew in population as they offered more affordable accommodation for those no longer needing to commute to or within the capital. Now, however, with footfall returning to London, it’s the region that has experienced the largest price increase. If we take London out of the mix, the average UK monthly rent is now 8.7% higher than this time last year.
Why is rent so high?
The real estate market has experienced a property boom in recent months with many people moving homes to meet new, flexible working requirements. But while demand has sky-rocketed, the number of properties available has taken a plunge, leaving a significant gap in supply and demand. In London, the number of available rental properties is down 44%, even lower than pre-pandemic.
Now that social restrictions have lifted, the boom continues as the world reopens.
“The return of office workers, international students and corporate relocation has seen demand for rental properties rocket over the past few months. Coupled with some landlords selling up in the face of regulatory changes and an improving sales market, the lack of stock is stark, pushing up competition and prices across the board.”Frances Clacy, Research Analyst, Savills
What is the most a landlord can raise rent?
There are several variables to how much and how often landlords can fairly increase rent. For example, with a rolling contract, rent can typically be increased once a year with prior notice. With a fixed-term tenancy, agreement from the tenant is also required beforehand before any costs change, which if declined, can only be requested again at the end of the fixed term.
Landlords can include a rent review clause within a tenancy contract and are required to inform tenants of when any price increases will happen, how much costs will increase, and how the increase is calculated. A practical way to gauge where to start any increase calculations is the annual rent inflation formula.
If a rent increase is proposed, the tenant must agree to the price change first. The amount of notice required depends on the contract type, but generally, between one and six months’ notice should be given. Any price boosts should be assessed against the average rent in the local area, property type and size, and inflation. A rent calculator can be a useful tool for comparing rental values by postcode and estimating a reasonable rent increase.
How to benefit from rental inflation
If you’re a new or property investor, rental inflation can be beneficial in many ways. If you don’t yet own or are invested in property in some of the regions that have experienced significant rental price growth in the last 12 months, there are many opportunities to take advantage of substantial rental yields while diversifying your portfolio.
At Propiteer Capital, our Residential Rentals investment bond offers an easy, hands-off way to grow money through high-quality UK property with fixed-rate annual returns of up to 5.5%. The assets within our portfolio are only bought based on their rental income, so their value remains stable in a recession and their profits increase with inflation. The bond features:
· Renting of completed buy-to-let apartments
· Popular locations in transient cities
· Purpose-built quality living units
· Acquisition decisions are based on rental income
· Recession-resilient asset class
If you’re interested in getting involved in diverse, asset-backed property investing, give our friendly customer service team a call on 01376 319 000 or email firstname.lastname@example.org. To find out more about our Residential Rental investment bond and its benefits, visit our website.
Recommended Read: Brizes Park Sees Exciting Changes