London Accounts for 40% of £1.4trn PRS Value

New research suggests that the combined value of the UK's 5.5 million private rental sector (PRS) homes stands at £1.4 trillion.

This estimate comes after UK property prices have risen during the past 12 months, spurred on by the government's stamp duty holiday and rising demand for larger homes with more outside space.

According to recent figures, based on an average property prices of just over £270,000, rental homes in England make up the bulk of that valuation. With just over 1 million rental properties, London accounts for a large slice if that total market valuation. Meanwhile, the recent increase in property prices combined with the recovery in rents across the country will likely support the continuation of the UK's buy-to-let (BTL) market and PRS sector. This is positive news as prior to the coronavirus pandemic, there were concerns that more property investors would leave the BTL sector amid higher taxes and fewer supportive measures.

England Makes Up Bulk of BTL Valuation

Following a faster than expected pace of property price growth over the past year, the vast majority of that estimated £1.4 trillion valuation comes from the English PRS market with a current market value of £1.3 trillion, according to BTL property investment specialists Sequre. London’s PRS properties, meanwhile, combine to be worth some 40% of that England total, with south east England and the east of England the next most valuable regions in terms of rental home values.

With strong price growth helping to lift average property prices, this latest valuation estimate is likely supportive of a recent survey conducted by Sequre showing that just 19% of landlords plan to sell their property investment over the next five years. Meanwhile, only 10% have exited the market since 2017 with the most common reasons relating to tenant problems rather than government tax increases.

Capital Gains Support BTL Investment

While the latest Nationwide house price index showed a monthly drop of 0.5% in July compared with June and a slowdown in the annual pace of price growth to 10.5% (from 13.4%in June), a double-digit annual increase indicates strong momentum. Indeed, it means each property in England is worth an average of around £24,000 more than a year earlier.

From a property investor’s perspective, particularly in the BTL sector, this increase ensures their investment is providing a double benefit – an annual yield from the regular rent and a welcome capital increase. These latest gains, therefore, could encourage more property investors to remain in the market while also attracting new investment into it too.

Of course, its important to note that property prices don’t always make spectacular gains. However, in recent years, there have been more periods of gains and stability than declines. This is without doubt a positive scenario for capital gains in the long-term which is something many BTL investors factor into their decisions and should prove beneficial for the future of the broader PRS and lettings market.