Rental snapshot – rents climb, BTR market share ris…

Rental snapshot – rents climb, BTR market share ris…

For buy-to-let investors, this particular sector promises strong rental premiums when compared to expected earnings on the traditional long-term rental market.

Revolution Brokers’ found that in England, the average monthly rent is currently £943, compared to holiday let average of £1,137 – a premium of 21%.

This premium can be much higher depending on the region. In the South West, home to popular holiday destinations such as Cornwall and Devon, the holiday let premium is 35%, followed by the East Midlands (30%), North East (24%) and West Midlands (24%).

Rental premiums such as these make holiday lets a very attractive investment for buy-to-let landlords. However, it comes with a fair share of complexities to consider.

Pros and cons of holiday lets

The main advantage of holiday lets for investors include:

  • Strong rental yields

  • Problem tenants are only short-lived

  • Because holiday lets are classed as a business instead of an investment, landlords can deduct mortgage interest from their profits.

Meanwhile, the potential downside of holiday lets include:

  • Risk of void periods is higher.

  • Landlord is responsible for paying utility bills etc.

  • Mortgage interest rates tend to be higher mainly because the risks associated with holiday lets are greater than with long-term rentals.

Playing by the holiday let rules

A big consideration when contemplating a holiday let investment is the rulebook.

First, the property must be available to rent for at least 210 days a year and no single let can last for more than 31 continuous days.

Mortgage providers will often want to know that you intend to make the property available for holiday lets and existing providers may want to change the terms of your deal. 

Furthermore, different local authorities have different rules about holiday lets. Some will require a proper licence and others even insist that landlords apply for planning permission

The holiday let rulebook is extensive so landlords should take a look at the full government guidance before jumping to take advantage of the great premiums on offer.

The rise and rise of short lets

Commenting on the findings, Almas Uddin, founding director of Revolution Brokers, says: “The rise of Airbnb and other similar platforms has brought holiday lets to the forefront of people’s minds when they’re travelling around the UK.”

“No longer are hotels the first point of enquiry and while Airbnb has opened the door for non-professional landlords to earn money from their home – following strict guidelines in the process – the increased awareness has created a huge opportunity for professional investors who want to secure better yields than they may be able to do within the regular buy-to-let market.”

He continues: “Location is obviously all-important for a successful holiday let – the potential for extensive void periods means they’re best suited to cities and popular holiday destinations local coastal or historic towns where demand is going to be reliable for much of the year.”

“We recently oversaw the financing of a short-term let investment in Cornwall with a yield of 18.5% versus the average of 4% across the wider area, so they can be incredibly lucrative.”

Table shows average monthly rent for holiday lets and long-term rentals alongside % difference

Category

Location

Holiday let property ave rent

Ave rent

Difference

Region

South West

£1,416

£1,051

35%

Region

East Midlands

£987

£761

30%

Region

North East

£731

£590

24%

Region

West Midlands

£1,014

£819

24%

Region

South East

£1,354

£1,181

15%

Region

London

£2,068

£1,832

13%

Region

East of England

£1,171

£1,062

10%

Region

Yorkshire and the Humber

£812

£757

7%

Region

North West

£939

£879

7%

Nation

England

£1,137

£943

21%

BTR new-builds account for 34% of all new homes in London

The proportion of new-build completions coming via the build-to-rent (BTR) sector now accounts for over 7% of all new homes reaching the market.

That is according to rental platform Rentd, which analysed total new-build completions over the last year, as well as what level these competitions are attributed to the expanding BTR sector.

The growth of BTR

Build-to-rent has become an increasing focus of the new-build sector, delivering high-quality developments designed with long-term renting in mind.

Last year, 7,123 new rental homes came via the build-to-rent sector, a 25% uplift on the volume of build-to-rent completions seen in 2020. This growth is some 7% higher than the increase seen in total new-build completions during the same period. 

As a result, build-to-rent completions accounted for 7.2% of all new-build homes delivered last year, up from 6.8% the previous year. 

However, Rentd discovered the sector’s impact has been far greater in London. The 21,000 new homes delivered in the capital in 2021 account for just 10% of the UK total. The 7,123 build-to-rent completions, on the other hand, account for just shy of half (48%) of the national total. 

Consequently, build-to-rent completions accounted for 34% of all new-build delivery across London in 2021, with this market share increasing from 29.2% the year before. 

This growth has been more muted elsewhere around the UK, with build-to-rent market share increasing from 4.1% to 4.2% between 2020 and 2021. 

More than just bricks and mortar

Ahmed Gamal, founder and chief executive officer of Rentd, comments: “The new-build sector has evolved to deliver more than just bricks and mortar, with the lifestyle offering provided by new-build developments becoming as pivotal to their appeal as the property itself.”

“So it’s hardly surprising that this focus on better quality living to suit the modern resident has transferred so well to the rental sector and, in fact, it’s more surprising that it’s taken so long to happen.”

Gamal says despite its relative infancy, the build-to-rent sector has grown rapidly and “there’s no doubt it will continue to do so over the coming years”, as it becomes a greater area of focus for the nation’s housebuilders. 

“Of course, we remain a nation of aspirational homebuyers and so while more of us are choosing to rent until later in life, we’re unlikely to see build-to-rent eradicate this appetite to own our own homes entirely,” he adds. “But the sector does provide a fantastic alternative for the smaller proportion of the population who prefer the flexibility and easier freedom of movement that renting can provide.”

Insight: hottest rental spots revealed as tenant demand returns

Research by estate and lettings agent Barrows and Forrester has revealed that tenant demand has started to climb across the rental market, with West Yorkshire enjoying the largest uplift in demand at +10%.

The Barrows and Forrester Rental Demand Index monitors rental listings across the nation, taking an average demand score for each English county based on the number of properties already let as a percentage of all rental listings. 

Rental demand across England is currently sitting at 39%, having shown a slight 1% quarterly increase when compared to the first quarter of this year. 

While the rental market has struggled during the pandemic, it appears tenants are now returning and West Yorkshire has enjoyed the largest rental market revival with a 10% quarterly increase.

South Yorkshire, Greater Manchester and Dorset have also enjoyed some of the largest quarterly rental market revivals with a +6% increase when compared to Q1 of this year. 

Dorset is also home to some of the highest current demand for rental homes, with 62% of those listed on the market in Q2 already seeing a let agreed. 

In fact, just West Sussex is currently seeing a greater level of tenant demand at 66%, while Bristol (60%) also makes the top three hottest rental markets in Q2. 

However, no less than 21 counties have seen rental demand either remain flat or decline since the start of the year. 

Cornwall has seen the largest reduction, down -11% quarter to quarter, with Herefordshire (-10%) and Suffolk (-9%) also seeing some of the largest declines. 

Managing director of Barrows and Forrester, James Forrester, explains: “Demand for rental properties is once again starting to climb and while tenant activity still remains muted in some corners of the country, the vast majority of the market has blown away any remaining cobwebs caused by a pandemic decline in demand.”

“We expect this appetite for private rental stock will only strengthen as the year progresses as a return to normality has revived the need for rental homes across our major cities, in particular.”

Table shows current tenant demand for rental properties and the quarterly change
Location Demand % – Q2, 2022 Quarterly change
West Yorkshire 29% 10%
South Yorkshire 37% 6%
Greater Manchester 46% 6%
Dorset 62% 6%
Tyne and Wear 37% 5%
Warwickshire 49% 4%
City of London 30% 4%
Hampshire 48% 4%
Oxfordshire 43% 4%
Gloucestershire 56% 4%
Durham 42% 3%
West Midlands (county) 26% 3%
Surrey 50% 3%
Bath and North East Somerset 52% 3%
Nottinghamshire 36% 2%
Berkshire 45% 2%
Worcestershire 37% 2%
Merseyside 29% 2%
East Sussex 47% 2%
Cumbria 44% 2%
Greater London 34% 1%
City of Bristol 60% 1%
Cambridgeshire 55% 1%
Somerset 55% 1%
Northamptonshire 49% 1%
Leicestershire 24% 1%
Devon 37% 1%
Lancashire 29% 1%
North Yorkshire 43% 0%
Kent 46% 0%
Staffordshire 35% 0%
Bedfordshire 51% 0%
Hertfordshire 50% -1%
Buckinghamshire 51% -1%
Derbyshire 40% -1%
Lincolnshire 30% -1%
Norfolk 43% -2%
East Riding of Yorkshire 27% -3%
Northumberland 42% -3%
Cheshire 41% -3%
West Sussex 66% -3%
Shropshire 51% -4%
Essex 48% -4%
Isle of Wight 53% -5%
Wiltshire 57% -5%
Rutland 48% -7%
Suffolk 51% -9%
Herefordshire 36% -10%
Cornwall 55% -11%
England 39% 1%

https://www.propertyinvestortoday.co.uk/breaking-news/2022/7/rental-snapshot–rents-climb-btr-market-share-rises-and-hotspots-revealed

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