The UK rental market right now is BOOMING! Supply and demand of tenants to available properties is at an all time high. If you've ever been thinking of purchasing a second property as a 'Buy To Let' or 'Holiday Let' then now is the time. We have tenants referenced and waiting for properties right now.
Key Points
· 12.1% increase in rental values over the last 12 months. This is more than double of earnings at 6%
· Demand is 46% above average while supply is 38% lower
· Affordability for a single renter is at its highest in over a decade at 35% of average weekly earnings
· Demand on one-bedroom flats has seen its highest demand in ten years as renters are seeking better value
· Rental affordability will start to hit the increase in rent prices in first half of 2023
· Rent growth likely to slow to maximum 5% by end of 2023
Property supply and demand is at a high
The rental market continues to face a huge imbalance between supply and demand. With mortgage rates rising, this is putting more pressure on demand as home ownership for first time buyers is limited due to new affordability measures. Rental enquiries per estate agency branch are 46% above the 5 year average. However, the stock of homes for rent remains 38% below the 5 year average.
Rental prices are still on the rise
With there being this chronic shortage of property in terms of supply & demand, its unlikely that rent inflation will slow down any time soon.
For the 75% of renters that do not move property each year, rental increases are much lower at just 3.8% in the year to October 2022 this slower than the growth in average earnings. Our data compares the rental inflation rate for new lettings versus all private rented homes based on the ONS Index of Private Housing Rental Prices. The variance shown is to why more renters are staying put, to avoid higher rental payments when they move, and further compounding supply problems.
Big cities have the highest levels of inflation
Rent prices are increasing fastest in the largest UK cities, this is led by London where rent costs have soared 17% (£273) per month over the last 12 months. Below is a graph that gives a view on other cities with great increases month-on-month. Not all cities are registering rapid gains, with Hull, York, Oxford and Leicester recording slower growth of less than 8%.
Will rental inflation stop?
The only way to slow down rental inflation is to increase the supply of properties, however this hasn’t happened since 2016. Over the last few years, we have seen taxes, new regulations and soaring house prices due to the pandemic has pushed landlords to ‘re-think’ their properties. This has resulted in many taking the opportunity to use a good selling market to re-structure there properties and downsize to make as much profit as possible, this will of course put further pressure on rental prices. As well as that, mortgages for buy-to-lets have recently changed the calculation for their lending criteria, again pushing rental inflation up to support landlords who are able to afford this.
Proposed regulations and new rules on renting homes that are not at an Energy Efficiency rating of C or above from 2025 are likely to result in more private landlords selling up homes that are expensive to renovate to meet this new criteria. This will offset the impact of new investment.
There is a chance that if the sales market relaxes this year we could see a slight increase in supply, which will help with the supply & demand situation as landlords looking to sell homes may now continue to rent them out while uncertainty in the wider sales market lasts.
Summary
The rental market plays a key role in the UK housing market. A prolonged period of lower new investment in rented homes by landlords, together with a rationalisation of landlord portfolios, has seen the growth in rental supply stall over recent years. When there is increased demand against a lack of supply it pushes rents higher adding to affordability pressures for renters. This means more tenants are having to consider a greater set of compromises when looking to secure a home. The demand for rented homes is only going to rise in the medium term, so it's important we encourage more supply from all forms of landlords, whether private individuals or large corporates. It is important that policymakers encourage good landlords of all types and sizes to stay in the market and deliver much needed supply, therefore rethinking some of the new policies brought in is needed urgently. Only by increasing investment in the private rented sector can we ease the affordability pressures on renters in the medium term and make for a more sustainable rental market.
