Increasing demand for rental accommodations and foreign interest in UK properties


Increasing demand for rental accommodations and foreign interest in UK properties

11 Jun 2018

Average rental yield UK

The population of the UK is growing by an average of 500,000 people each year but only fifty percent of the housing demand is met. Landlords are buying fewer homes since the introduction of Stamp Duty Land Tax (SDLT) of 3 percent in April 2016. Despite the introduction of SDLT, the number of households renting has increased.  Lack of affordable apartments is the main reason for the housing shortage. The housing shortage has a severe impact on the UK economy where the household debt is one of the highest and private debt is, mainly, due to limited accommodations. The population of the UK is growing by an average of 500,000 people each year but only fifty percent of the housing demand is met and rental accommodations.

Landlords are buying fewer homes since the introduction of Stamp Duty Land Tax (SDLT) of 3 percent in April 2016. Despite the introduction of SDLT, the number of households renting has increased.  Lack of affordable apartments is the main reason for the housing shortage.  The housing shortage has a severe impact on the UK economy where the household debt is one of the highest and private debt is, mainly, due to limited accommodations.

The demand for rental properties in the UK has doubled since 2002. The latest research from Hamptons International suggests

  • The renting sector is one of the primary housing markets in the UK.
  • Six million people require a rental property by 2025.
  • By 2022, about 20.5 percent of UK households need rental accommodation, which is up from 19.4 percent (in 2018).

graphExperts are not predicting a revival in prices and are expecting volatility in prices. Prices are expected to depend on other economic factors i.e. labor market conditions and interest rates but shortage will persist.

At the same time, the rental prices inflation was stable and rose at a rate of more than 4 percent in 2017 as compared to 2016.

The low stock continues to drive rental rate in most regions and southwest was the fastest-growing rental market in April 2018 according to Hamptons reports.

Housing reports by Halifax figures predict a rise in prices -

  • Spike in prices in March 2018 (even though, the price gains over the year is expected to be 2 percent).
  • The lack of direction in housing is in contrast to the gain in the UK job market. Low unemployment, housing shortage, and low mortgage rates will lead to rising prices in the coming months.

The current mortgage rate is the most affordable and an increase in price is predicted due to a shortage of stock and low activity in this area in the last few months. 

Two major housing events of Q1 2018 are   

  1. Increase in price in South West by 3 percent – which was faster than anywhere in England.
  2. The average rental price rose to £654, in the East Midlands, which increased the average landlord yields from 4 to 4.3 percent in March – April months.

Foreign interest in UK properties

International buyers are interested in UK properties as the market outlook is positively supported by rising competition and lack of supply for the best properties.  Supply is a hundred-year low as compared to demand and rental yield is increasing. Other attractions are the exchange rate, location, and quality of life.

International buyers are lured by high returns on rental properties at the time of low-interest rates. They are targeting prime location in London which includes the most expensive properties, where prices have dropped by more than 15 percent since 2014. 

Hamptons International reports states more than half of the home buyers in prime Central London and about one-third home purchasers in Greater London, were international buyers.

International buyers accounted for 51 percent purchase in London up by 44 percent from the second quarter of 2017.

In the third quarter of 2017, the properties bought by international buyers in Prime Central London were second-highest, ever since the EU referendum.

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