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Record rental yields, Covid rent losses, demand for property, and housing market inflation on the horizon

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UK property news currently focuses from the reactions of the private rented sector to the effects of the recent pandemic. There is both good news and bad with average rental yields now their highest in six years but some landlords reporting losses of income because of Covid.

The demand from homebuyers is also riding high – but the warning bells are beginning to ring about the market being hit by galloping inflation.

Let’s take a look behind the headlines.

Rental yields now highest for six years

The average rental yield across the whole of the UK is 5.5% announced Landlord Today last week. These are the highest yields recorded since 2016 when an average of 5.6% was reported.

There are regional differences. Rents in Wales and the Northeast have achieved record yields and those in London, Yorkshire, and the Southwest are at their highest since 2015.

The average growth in rental yields currently outstrips the growth in the owner-occupiers’ housing market – with the exception of the Southeast, Southwest, and the East Midlands. In the capital, average rents have hit a record of more than £2,100 a calendar month.

Nearly a quarter of landlords hit by rent losses because of Covid

While the majority of landlords might be enjoying record rental yields, a sizeable minority – 25% – have reported losses of rental income because of the effects of the coronavirus pandemic.

Writing on the 26th of January, the National Residential Landlords Association (NRLA) reported that one in four of its member landlords recorded rental losses. Between March of 2020 and September 2021, the results of a joint poll by the NRLA and YouGov found that 23% of landlords had suffered a loss of rent because of Covid.

11% of those landlords had agreed rent reductions with tenants in financial difficulties or had granted temporary rent holidays to allow tenants a chance to recover. 8% of landlords said that the non-payment of rent had caused serious problems with at least one tenant and a further 4% had to leave let properties empty during the period under investigation.

Since those landlords affected by rent loss problems such as these are twice as likely to sell up and quit the buy to let market, the NRLA warns that the pandemic is likely to have made the shortage in supply of rental accommodation that much worse.

New Year demand for property hits record levels, up 50%

The demand for homes to buy is soaring, said the online listings website Zoopla on the 27th of January. The market experienced its biggest leap in five years in response to a surge in demand for homes of all types.

Demand was up nearly 50% in January – its highest leap since the New Year of 2017.

The latest surge in homebuyers is roughly the same as that experienced during the Stamp Duty holiday that was introduced in July of 2020 and suggests that there is still scope for even further growth in demand, said Zoopla.

Although more homes are finally coming onto the market, the demand still significantly outweighs supply. That imbalance between supply and demand continues to fuel increases in the value of homes which have risen to an average of £242,000 – equivalent to an annual increase of 7.4% on the average price of £216,500 at the same time last year.

Housing market could be hit by rocketing inflation

The housing market needs to prepare itself for a double whammy in the face of runaway inflation in the months ahead, warned Property Industry Eye in an article on the 24th of January.

The rate of inflation in the UK has already risen to 5.4% – a 30-year high – as prices for food, clothes, furniture, and housing grow steadily higher.

That process of inflation threatens to deal a double blow to the housing market:

  • inflation means that people have a lot less money to spend. With all other prices around them mounting, first-time homebuyers will be far less likely to take the plunge with the huge financial commitment of putting their first foot on the housing ladder. Instead, they are likely to “wait and see”. That, in turn, deprives the market of buyers;
  • secondly, the Bank of England may be inclined to increase interest rates so that people have less money in their pockets, they spend less, and inflation is pushed down that way. Except for the fact that much of that expenditure is beyond the control of the average consumer and goes on daily essentials such as food, heating, light, and water.

Whether interest rates go up – and by how much – inflation will be one of the determining factors for the health of the housing market in the months to come.