The private rented sector continues to be inundated with high tenant demand, and the latest forecasts show this will push up prices further next year.
The much-reported supply and demand imbalance in the UK’s private rented sector is showing no signs of easing, meaning huge numbers of landlords are still experiencing unprecedented appetite for their rental homes when they are listed. In such a market, this is inevitably pushing up rental prices.
According to Paragon Bank, tenant demand has now reached record levels, with 71% of surveyed landlords stating that they have seen an uplift in tenant demand in the third quarter of this year. This compares with 67% who said the same in the second quarter.
These findings also serve to demonstrate how crucial rental property is in the housing market right now. With mortgage rates remaining high, many would-be first-time buyers are putting off purchasing a property, and instead renting for longer. Greater numbers of tenants are also opting to renew existing tenancies.
Paragon’s findings reveal a record high since the research was first conducted by BVA BDRC 12 years ago.
The research shows that 76% of landlords in the West Midlands reported a stronger tenant demand in Q3, putting it at the top of the list in terms of need for rental property. This was followed by Wales with 75% of landlords reporting the same, then South East (74%) and East Midlands (73%).
The link between tenant demand and prices
A huge 87% of landlords in Paragon’s survey said they had noted rents rising in the area in which they operate, while 70% said they themselves have upped their rents within the last 12 months. In Q2, 65% of landlords said they had raised their prices.
Further to this, more than half (54%) intend to increase their rents on their properties in the next six months (compared with 51% last quarter), and the hikes are expected to be an average of 8.4% for tenants.
While higher tenant demand is certainly pushing up prices, in many cases causing pricing wars among some prospective tenants, 66% of landlords said they were increasing them because of higher running costs. Almost half (48%) planned to hike their rents to cover higher mortgage costs.
Richard Rowntree, managing director for Mortgages for Paragon Bank, urges greater investment in the buy-to-let sector.
“During the first two quarters of the year we saw record levels of tenant demand reported by landlords,” he said.
“For this to be surpassed in Q3 highlights how the imbalance between the supply of rented homes and demand from renters is not improving. This reduces choice and increases competition for renters, while fuelling rental inflation, a scenario that often impacts the most vulnerable to the greatest degree.
“With social housing unable to meet this demand and home ownership aspirations hindered by cost-of-living pressures, further investment in the PRS cannot be delayed.”
Big rises in 2024
For property investors, rental growth is boosting yields as well as helping to offset the rising costs of borrowing and other essential outgoings for landlords. Keeping an eye on current as well as forecast rental prices in your area is important to ensure your property investment will be successful in the long term.
New research published by JLL has set out its expectations for the rental market in the coming years, linked to factors such as tenant demand and low supply, as well as other situations affecting the sector, and it predicts that current rental growth trends will continue.
According to its report, the supply of rental homes has fallen short of tenant demand by approximately 1.5 million homes since the mid-2000s. It believes that between now and 2028, the cumulative shortfall will be 720,000 in the private rented sector.
Therefore, it expects UK rents to increase by a cumulative 22.80% between 2024 and 2028, with next year to see the biggest increase of 5%. This will be followed by 4.5% in 2025, 4% in 2026, 4% in 2027 and 3.5% in 2028.
Its report notes: “Looking ahead, over the next five years, the lack of new rental stock, the result of fewer new home completions and a more challenging interest rate environment, will likely lead to rental growth surpassing wage growth.
“We forecast a 5% increase in rents across the UK in 2024. From 2025 onwards, we anticipate that more attractive mortgage rates will prompt more tenants to transition into homeownership, and this shift will bring about a better equilibrium between tenant demand and available rental stock.”