Strong tenant demand and a lack of suitable rental stock continues to place additional pressure on rental prices. In addition, the cost of borrowing is rising in line with five consecutive interest rate hikes and escalating swap rates which continue to directly, and negatively, impact headline rates.
Repricing and criteria adjustments are part and parcel of the current mortgage market. A market which is moving so fast that it can be hard for advisers to keep track, let alone landlords. Even those who have been operating in and around the sector for many years and have a strong handle on their borrowing needs. Landlords also have a plethora of other considerations to consider, especially when it comes to associated costs. This will be especially apparent for those landlords with HMOs and/or holiday lets as these tend to include bills and other outgoings into the rental equation. Of course, these property types also generate higher yields but with energy prices continuing to mount, these yields are being squeezed and this is something which landlords need to consider and adjust accordingly, if possible.
Earlier in this piece, I highlighted the fact that the Bank of England base rate has increased over five consecutive months. What’s also interesting to note is the fact that average rents have also climbed for five consecutive months. A trend outlined in recent analysis from Goodlord which highlighted a 2.8% monthly rise. According to the figures, June's increase takes the average cost of a rental property in England from £1,020 to £1,050 per month. To maintain some perspective, average prices in June were still below the record-breaking highs recorded in September 2021, when prices hit £1,104 per property.
It was also thought-provoking to see these broken down from a regional perspective, with a rise in rental costs recorded in 7 out of the 8 regions monitored by Goodlord. The highest rise was seen in the South West, where a sizeable 10% increase in the cost of rent was recorded. A large rise was also recorded in the North East – the home of the cheapest rents in the country – where costs rose by 8% over the last month. The only region to record a decrease was the West Midlands, where a 2% reduction in prices was recorded.
In a statement as obvious as the ‘buy low, sell high’ Warren Buffet school of economics, it’s clear that landlords are having to scrutinise yields, rents and costs more extensively than ever in an economic climate which is likely to have more twists and turns in store. Not to mention how any potential rental increases may impact existing and future tenants.
What landlords do have on their side to help them navigate these choppy waters is easy access to good, professional advice. Advice which can open the door to a host of solutions and options which may otherwise see some of the more competitive BTL deals sink without trace. And it’s encouraging to see more landlords embracing this advice process to take advantage of opportunities which continue to present themselves within pockets of the UK where rental demand is also hitting new heights.
