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2022 has come with a unique set of challenges for everyone. Nationwide inflation and skyrocketing energy costs have greatly affected the property market. With the 2019 pandemic still having a domino effect across the UK economy and political changes providing a sense of instability; it has been difficult for property owners to look forward to 2023 with much clarity or optimism.
But has any good come from the changes the UK has seen over the last year? And what can we expect in 2023?
Whilst there are still many challenges ahead, there are some significant causes for optimism that property owners can look forward to in the coming year. There are some exciting developments in rising yields for landlords, as well as highly profitable rental opportunities within some areas of the UK.
Rentals are in very high demand
Demand for rental properties in the UK has steadily increased throughout 2022. The Zoopla UK Rental Report (Q3) stated that UK rental growth is close to peaking at +12.3% per annum.
Cities in the East Midlands, specifically Derby and Birmingham, are prime investment opportunities for landlords with some estimates suggesting rental growth of 14% by 2026.
Rental yields continue to increase
Your rental yield is the sum of the total annual rent your tenant pays, divided by the value of the property. Rental yield is the most crucial metric to consider when starting a new property investment to estimate your returns. This year has seen some positive news for landlords in relation to rental yields.
Total returns from rental income recently climbed from -2% (2020) to an astounding 17% (2021). Even allowing for last year’s acceleration in inflation, these returns are impressive and provide hope for the remainder of 2022. With high mortgage rates leaving potential buyers waiting, the demand for rentals is expected to continue to increase. Analysis from the property investment company Track Capital has found a handful of northern student cities to be leading uk rental yield increases, including; Newcastle Upon Tyne (Avg. 9.8%), Manchester (avg. 10.1%), Bradford (10.6%) and Nottingham (11.3%).
The cities with the highest growth in rental yields could be reflective of desired lifestyle changes from tenants. We can see from the data that affordable regional cities are becoming leading rental hotspots for the UK. Over the last few years, renter priorities have shifted – With more renters desiring more space whilst enjoying the ease and transport links that living in a small city provides.
Whilst 2022 has brought a unique set of challenges for the rental sector, there are some promising trends that we hope to see carried over into 2023.