The UK housing market remains a robust option for residential investors seeking long-term returns, as confidence grows among institutional buyers. With around 20% of the country’s housing market made up of the private rented sector, it plays a crucial role in addressing supply and demand challenges within the broader property sector. As tenant demand continues to rise, rental homes are in high demand across much of the UK.
Market Trends and Investment Opportunities
From an investment perspective, the current trends are expected to persist in the near term. Factors such as the cost of living crisis and high mortgage rates are likely to deter some first-time buyers, leading many to rent longer. The rapid growth in the UK’s build-to-rent sector is a clear indication of the rental market’s positive long-term outlook for residential investors. These homes cater specifically to renters, particularly those seeking high-quality properties with superior amenities for long-term stays.
Although this segment of the market primarily targets institutional investors rather than individual residential investors (such as smaller buy-to-let landlords), its increasing popularity among tenants signals a shift in the rental market toward higher-quality offerings and community-oriented rental spaces.
Rising Demand
Research from trade body INREV highlights that residential properties became the top investment sector for European real estate funds in 2024. The share of residential properties in their portfolios has more than tripled between 2014 and 2024, reaching 23%. According to Knight Frank, investment in the build-to-rent sector hit a record high of £2.6 billion in the first half of 2024, with numerous developments in the pipeline continuing to attract institutional investors.
This investment trend suggests an expectation of growing tenant numbers, presenting more opportunities for residential investors to capitalize on this growth. Investors focusing on high-quality rental properties, including new-build units in prime locations, stand to benefit.
Institutional and Overseas Investors
Several institutional investors are looking to significantly increase their investment in UK rental homes. Companies like Aviva, L&G, M&G, and Royal London Asset Management plan to inject hundreds of millions of pounds into the market. For instance, Aviva Investors has invested £750 million in the sector over the past 18 months and aims to triple this amount in the next three to four years, with their latest deal involving 101 rental properties in Cambridge with housebuilder Barratt.
While institutional investors currently account for only 2% of the total rented stock in the country, private residential investors still represent a substantial portion of the market. International investors have historically focused on major UK cities due to their long-term growth potential. Although London remains popular, regional cities like Manchester, Birmingham, and Liverpool are also attracting significant interest from overseas investors.
Investing in UK property is perceived as a stable and predictable market, with a history of strong long-term growth. The growing rental market has also made UK buy-to-let investments attractive to many residential investors, who can benefit from both annual yields and capital appreciation. On the institutional side, companies like PGIM and Blackstone from the US have recently entered the UK residential sector with significant deals.
Regulatory Considerations
The possibility of rent controls has been discussed by the Labour party, which is now in government in the UK. However, Prime Minister Sir Keir Starmer has not addressed this issue since taking office, leaving uncertainty about whether these controls will be implemented.
Andrew Screen, head of residential capital markets at BNP Paribas, noted that rent caps are the “biggest fear” among investors, adding, “I’m a firm believer that if you want to reduce rents, increase supply.” Rick de Blaby, CEO of build-to-rent developer Get Living, echoed this sentiment, expressing concern that more regulation, especially rent controls, could stifle capital inflow into the market.
Stricter regulations may emerge through the Renters Reform Bill. Although passed by the previous government, it did not become law before Parliament was dissolved, so its future depends on Labour’s next steps. The party has expressed intent to eliminate Section 21 “no-fault” evictions, causing concern among some landlords and investors. However, many of the proposed regulatory changes aim to improve standards in the sector, which could benefit both landlords and tenants.
