Zoopla: 21 tenants competing for each rental – is buy-to-let worth it for landlords?

Rental growth may be slowing but landlords are still able to raise rents by double digits in areas close to major cities, Zoopla claims.

The benefits of buy-to-let have been reduced in recent years due to higher mortgage rates and the scaling back of tax reliefs, which have dented landlord profits.

Many property investors are also fearing tax rises in the October Budget and reforms under the Renters’ Rights Bill.

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But the latest Rental Market Report from Zoopla shows a boost in tenant demand during July amid low levels of supply, with 21 people competing for each rental property – more than twice the pre-pandemic average.

High demand, coupled with low supply and rumours of landlords fleeing the sector amid fears of tax hikes, means rental growth remains high, albeit at a lower rate than in recent years.

"With tax changes and additional liabilities being imposed on many landlords, plus increases to the general cost of living and mortgage repayments, this places extreme pressure on operational costs,” says Nathan Emerson, chief executive of estate agent trade body Propertymark.

The state of the UK rental market

Restrictions on mortgage interest relief and high mortgage rates have dampened the appeal of buy-to-let for many property investors in recent years, while fears of tax rises have also deterred many from adding to their portfolio.

For those still in the market, there is only so much that tenants can afford to pay amid the cost-of-living crisis.

Zoopla’s latest data for July shows rental growth for new lets currently stands at 5.4%, half the rate of a year ago.

It is still higher than the growth in average earnings of 5.1% though.

Average rents hit £1,245 per month in July 2024, £63 per month higher than July 2023.

Rents continue to grow due to a lack of supply. The number of homes for rent is up by almost a fifth on last year off a low base, but the number of homes for rent is still 24% below the pre-pandemic average, Zoopla says.

Where are the best places for rental growth?

Much of the slowdown in UK rental growth is being driven by low growth in London, where Zoopla says rents for new lettings were up just 2.5% in July.

There are still some more affordable parts of the UK that are offering annual rental growth above 10% though, if landlords look close to major cities.

For example, average rents were up 5.3% annually in Glasgow during July but are rising by more than double that rate in nearby Kilmarnock at 13%.

Similarly, Edinburgh rents were up 7.3% annually but rose 12% in Kirkcaldy.

In England, while average rents are up 5.7% in Birmingham, they have risen by 12% in neighbouring Wolverhampton.

“The slowdown in rental inflation is being drawn out by a lack of homes for rent and continued strong demand, driven by the unaffordability of home ownership,” says Richard Donnell, executive director at Zoopla.

“Rental inflation is slowing in some major cities where rents are high but they are still increasing quickly in more affordable areas.”