Letting agents are reporting increasing enquiries from prospective tenants just as the supply of available properties is falling.
Goodlord’s annual State of the Lettings Industry Report, based on a survey of more than 3,000 letting agents, landlords and tenants, reveals that 45% of agents have seen tenant enquiries increase, compared with 26% reporting a decline. At the same time, half have experienced a fall in rental availability. Only 28% report an increase.
And, as a result, the data shows rents are rising, with the average in England up by 5.5% in the year to September.
Tenants expect to keep renting
One of the reasons for the current strength of demand is that relatively few tenants expect to move into homeownership in the near future.
Goodlord found that 39% intend to remain in their current home, and another 24% plan to move to a different rental property.
Only 22% see buying a home as their next objective, and 60% believe they are unlikely to purchase a property within the next 12 months.
Renting has also become a longer-term arrangement for many households. Some 70% have lived in their current property for at least two years, including 48% who have been there for four years or longer.
Fewer landlords investing
The supply of rental properties, however, is heading in the opposite direction. Goodlord found that relatively few landlords are looking to expand their portfolios, with many instead reducing their holdings.
Of those surveyed, 27% have reduced their portfolios or are attempting to do so. That includes 11% who have already sold at least one property during the past year and another 16% who are trying to sell.
In contrast, 3% have added properties to their portfolios, and just 3% are looking to buy. The majority, 67%, have made no changes.
Among those landlords reducing their holdings, 47% intend to leave the sector within the next two years.
The Renters’ Rights Act is the most common reason given for cutting back on investment, which was mentioned by 65% of these landlords. Concerns about further legislation come next at 51%, followed by 49% who cite taxation changes and 37% higher running costs.
Not every property sold by a landlord leaves the rental market, as some are purchased by other investors. Even so, Goodlord warns: “Unless supply grows, tenants moving into homeownership may free up too few properties to ease competition.”
Rents and yields
For those landlords remaining in the sector, the good news is that the increasing imbalance between supply and demand is helping support rental growth.
And, moving forward, Goodlord found that 42% of landlords expect to raise rents on existing tenants annually. The introduction of periodic tenancies has also made 28% more likely to carry out annual rent reviews.
However, the survey clearly shows there are limits to what tenants can afford. Of the tenants surveyed, 53% spend more than 30% of their take-home income on rent, and 54% have less than £500 in readily accessible savings and investments. More than a third (35%) say a rent increase of 6.5% would cause them financial distress.
You can read the full report here.
