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Rental demand unlikely to subside in 2024

December 15, 2023 | Investments   Landlord News  

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After another incredibly busy year for the Leeds rental sector, we check in with our thoughts on 2023 and what next year might bring – and it doesn’t look like the demand is going to slow down any time soon.

The rental market in Leeds has been very busy in the last 12 months and rents in many areas have increased by between 10% and 12% in 2023. At HOP, we are typically receiving between 25 and 30 enquiries for every single property we list, and will go on to pre-qualify around 10 of those potential tenants for a viewing. Of those that view the property, we usually expect three to apply, so it’s a very competitive market for tenants.

Additionally, we are continuing to see Tenants signing for properties based on online viewings only, a trend that started due to the pandemic, but has continued as technology for virtual tours improves and also as an indication of the competitiveness of the market.

At this time of year, there’s a bit of a spike in stock levels which is due to most people choosing not to move over the festive period in December and January. For Tenants, that means there is slightly less competition for the properties – so, if they act now they might have a slightly better chance of securing the property they want.

Luke Gidney, MD of HOP, says:

Looking ahead to 2024, the shortage of available rental property looks set to be an ongoing theme. Substantial tax increases and higher interest rates combined with some potentially laborious legislation means many Landlords will decide to sell up, putting yet more pressure on the market, with even fewer rental homes to go round.

“As a result, we do expect rents to rise as demand continues – although possibly at a slightly slower pace than in 2023. That said, a growth of between 8% and 10% would come as no surprise.”

All that said, the reality is that many tenants are already over-stretched financially, and lots are already facing a tough time due to sky-high energy bills and food inflation. The cost of living crisis is still very much in effect and there has been an increase in the number of tenants falling into rental arrears in 2023 – and this is likely to remain an issue in 2024.

For Landlords, this uncertainty is also driving the popularity of Rent Guarantee insurance, often known as Tenant Default Insurance. Typically, this kind of insurance protection costs around £250 a year and gives Landlords peace of mind that they are protected from financial losses incurred by Tenants failing to pay their rent.

Ultimately, the market needs more rental property and although many Landlords are selling up, there are others who are recognising the opportunities that the current market offers. This is particularly true for seasoned investors.

Our specialist investment division, HOP Investments, agreed more than £5 million worth of off-market investment sales in 2023.

What does this mean for 2024?

How this pans out in 2024 will depend on what interest rates do. However, there’s no doubt Leeds is still very attractive to investors and especially because it offers an excellent average rental yield of 6.3%, which means you can get even higher yields in certain pockets of the city.

In some areas of Leeds, you can find two-bedroom houses at £130,000 and three-bedroom homes around £180,000, so it still offers great value for money. These would rent for £850 and £975 respectively.

Plus, there’s the potential for capital growth over the medium to long term. Leeds sits comfortably in the top 10 table for the best UK cities to invest in property, and there is an abundance of reasons why. The city brings together several compelling factors – a growing younger population, thriving economy, great value investment and high yields, making it a savvy choice for investors on the hunt for decent returns.

Research by JLL shows that Leeds is consistently one of the top five cities in the UK for capital growth and our own five-year prediction suggests house price growth of 14% for Leeds between 2023 and 2027. With a skilled workforce of 1.4 million people, Leeds is fast becoming a leading business hub in the UK, hosting big companies including newcomers Channel 4, BT, Sky, First Direct and Asda. The city has also been named the “Digital Capital of the North” with one of the fastest-growing tech hubs in the UK.

With continued investment being pumped into the city with the likes of the exciting new South Bank region and TransPennine Routes upgrades being approved, Leeds isn’t putting the brakes on anytime soon.

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What are your investment plans for 2024?

Whether you are thinking on getting in on the wealth of rental opportunity, or selling up while HMO’s are in demand, then we are here to help.

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