Growing tenant numbers combined with fewer landlords is putting a strain on the UK rental market, pushing up rental prices across much of the country.
Overall, the latest Residential Market Survey released by the Royal Institute for Chartered Surveyors (RICS) last week revealed that optimism across much of the country’s housing market is continuing to grow, with a more upbeat outlook despite the hurdles.
While there could be a temporary increase in pressure if predictions for another Bank of England base rate rise come to fruition, which many lenders are already pre-empting by once again increasing mortgage rates, many of the member agents taking part in the study reported positive findings.
However, the picture remains much less certain when it comes to the UK rental market, with reports of dwindling supply levels, and a market that is struggling to keep up with the huge levels of tenant demand. This is pushing rental prices even higher across much of the country.
Rental market gap hitting tenants
Historically, renting has been hugely popular among younger people while they strive to save for a deposit for their own home. In recent years, though, there has been a shift towards long-term renting as a lifestyle choice, which has led to a huge increase in higher quality rental homes, such as build-to-rent.
Further to this is the fact that surging house prices has meant people must save for longer for a deposit, meaning additional demand in the rental market. And as the RICS report shows, this is being coupled with reducing numbers of homes to let available, exacerbating the supply-demand gap.
According to RICS, a net balance of +44% of survey respondents – surveyors operating in the sales and lettings markets – reported an increase in tenant demand in the rental market in May. Meanwhile, a net balance of -23% of respondents said new landlord instructions had declined during the same month.
So why is supply dwindling? Almost two-thirds of contributors said that they had experienced a rise in the number of buy-to-let landlords looking to sell properties. This could be for a range of reasons, from cashing in on a property for retirement to leaving the sector due to tax changes and interest rate rises.
Around two-thirds also reported a lower level of interest in the UK rental market from new buy-to-let investors over the past six months, which could be a result of the cost of living crisis taking its toll and affecting market confidence, as many have adopted a ‘wait and see’ approach.
How this affects tenants and landlords
The growing gap between supply and demand in the UK rental sector has certainly perturbed many in the industry, with some calling for the government to reverse recent tax changes that can reduce some landlords’ profits (Section 24), or to offer more incentives to landlords who provide crucial accommodation.
For tenants, the squeeze in supply means an extremely competitive market, with rising rents and many experiencing gazumping – where a landlord cancels their agreement to let the property due to receiving a higher offer.
According to RICS, a net balance of +53% of respondents believe rental prices will increase over the near term. The expectation is that rental price growth will average almost 6% per year over the next five years.
Landlords are therefore in high demand at the moment, with many reporting being inundated with requests as soon as their empty rental home hits the market. The positive for investors is that void periods will be minimised as properties are let quickly, and yield potential is strong in the current rental market.
Cash buyers in particular may find the current market conditions more favourable, as they will be much less affected by mortgage rate fluctuations or tax changes linked to mortgage interest relief. Those looking for a quick sale may also be willing to take a lower offer from a cash investor.
The UK housing market remains one of the most resilient sectors when it comes to long-term investment potential. Take a look at some of BuyAssociation’s current investment opportunities in key, up-and-coming locations across the UK, and get in touch for more information.
