What’s next for the rental market in 2015?

Most UK regions saw strong annual rental market growth in 2014 with no fewer than nine of the 12 regions covered by the Home Let index witnessing rental price rises in the 12 months to November 2014, the latest data shows.

It means that the average monthly private rent in the UK was £874 per month in November, up 11.7 per cent year-on-year.

Best performing regions

Overall the regions that experienced the highest annual rental price growth were Scotland, Greater London, and the West Midlands, with rental prices 11.7, 11 and 8.7 per cent higher than in November 2013, respectively.

Simply put, we need more houses. We expect to see growth in rental prices of 2-3%.

With the uncertainty of the Scottish Independence Referendum now a thing of the past, the Scottish housing market is performing particularly well, with rents rising 8.7 per cent month-on-month in November, thanks largely to greater consumer confidence and the strength of the Scottish economy. Oil-rich Aberdeen has a thriving rentals sector, as does “other Scottish cities throughout the country’, said Martin Totty of HomeLet.

The north leads the WAY charge

In England, 2014 ended with rents rising fastest in the North of the country, led by Yorkshire and Humber, where they rose by £66 (11.66 per cent) and the North East £65 (10.24 per cent) in November, the latest Move with Us Rental Index shows.

“In a change of pace, most of the country’s growth was driven by the North in November,” said Robin King, Director of Move with Us. “If these increases can be sustained in 2015, it’s a positive sign for these regions.”

Graham Davidson, Managing Director of Sequre Property Investment, wholeheartedly expects the rental market recovery in the North to continue in 2015, making it ripe for investment, especially in Manchester and Liverpool.

“Where buy-to-let is concerned, we expect to see the North West’s market grow, with more and more interest from investors looking to make the most of the region’s affordable prices and high yields,” said Graham.

North/South divide

Despite recent improvements, the rental market in the North is lagging behind the market in the South, especially in London. Research by Belvoir shows that over the last seven years, London rents are up by around 20 per cent, while in the North West they are down by 4 per cent versus 2008. Dorian Gonsalves of Belvoir said, “Rents are likely to be static or increase by up to three per cent in 2015.”

Generation rent

The Regis Group, a property investment company, anticipates that the size of the private rented sector will increase further this year as young people look to the benefits of rented accommodation.

Paul McFadyen of Regis Group said, “We expect rental prices to creep up in line rent reviews in 2015, however, with greater demand for private rented units; tenants across the UK will be able to negotiate better quality housing, longer term tenures and efficient and reliable property management services.”

With the UK economic recovery continuing to gain traction and with positive real wage growth increasingly likely over the next few years, Knight Frank’s Liam Bailey also believes that there is scope for “sustained price and rental growth” across many parts of the country in 2015.

Supply-demand imbalance

It is a “virtuous circle” for the letting market, according to Sue Foxley, Research Director at Cluttons, who added, “Significant improvements in the level of employment, coupled with the sales market undergoing a period of a stabilisation has resulted in resurgence in new and existing tenants entering the market.”

But while demand from tenants continues to grow, the supply of rental stock coming onto the market remains low in comparison, with the pace of house-building unlikely to have a significant effect on the supply of property to rent in the short-term.

“Simply put, we need more houses,” said David Cox of ARLA. “Demand continues to outstrip supply. Even with some increase in supply during 2015, we still expect to see growth in rental prices of 2-3 per cent.”

Nick Barnes of Chestertons, added, “The combination of increased demand and static or reduced supply will inevitably exert upwards pressure on rents although the degree of uplift will vary according to submarkets and price bands.”

Things to consider:

• The recent Immigration Act requirements on landlords, now being piloted in the West Midlands, may be rolled out in 2015.
• The outcome of the General Election will have a major impact on the private rented sector.
• Landlords will be hit by pending interest rate rises.
• Pensions reforms are likely to boost demand for buy-to-let investments.
• The ‘build to rent’ Government initiative could impact negatively on returns in theshort term.