A lot has happened over the last month or so in the private rented sector. In this month's newsletter, we'll dive into what's been happening and how it could affect your property.
At a glance, with the whirlwind of financial uncertainty that was the mini-budget and everything that has happened since then, it seems like we're heading into unknown territory in terms of the economy and the property market.
Let's unpick the latest news & why the initial predictions for the property market over the next 12 months may not be as drastic as first thought...
The New Government
Back in September, we welcomed Liz Truss as our new Prime Minister. However, with markets & the Bank of England reacting very negatively to the proposals laid out in the Mini-budget, her term was very short-lived.
Then, later in October, it was decided that Rishi Sunak would be Prime Minister, and he quickly went about dismantling many of the outlined proposals made by his predecessor. One of the biggest effects of this on the property market is how banks and mortgage lenders have reacted to this.
We've just had another 0.75% rise in the base rate, however, this was expected anyway to try to curb inflation, which leads us onto mortgage rate changes.
Mortgage rates
In recent weeks, after the fallout from Liz Truss' term in office, many mortgage lenders had their borrowing rates in the 5-6% region, with some buy-to-let mortgages coming in even higher.
Zoopla predicted in their most recent house price index that sustained 6% rates would lead to a double-digit drop in property prices, which would erode the gains in property values made over the course of the pandemic.
With financial markets seemingly more stable, we're now seeing major lenders such as Nationwide have more affordable mortgage rates, with many of their mortgages now falling in the 4-5% region in terms of interest on the amount borrowed.
All of this may seem like doom & gloom for the property market, but Zoopla's data says the most likely outcome as we enter next year is for mortgage rates to fall to around the 4% mark. It also predicts that a lower interest rate would only see a maximum property price drop of just 5%, with demand beginning to slow down & supply levels getting closer to pre-pandemic numbers.
This outcome is most likely & would result in a slightly less hectic property market and more realistic property prices. With buying demand slowing down, this could have a knock-on effect on the rental market, as more buyers would be able to afford to find a property due to less competition, and so we may see some of those renters who are looking to buy leave the sector, thus helping to cool demand slightly. We may also see more investors purchase properties to let as a result of prices not being so inflated, and more properties becoming available to buy.
The major problems in the PRS, however, will remain largely unsolved with more & more landlords leaving the market each year.
The rental market is still very strong
There are currently 46% LESS available properties to rent vs the 5-year average, causing prices to increase month on month. Over the past year, there has been a 12.3% increase in rental prices across the UK according to Zoopla, with average rents rising £115 per month in total.
There is also a 142% increase in demand vs the 5-year average for rented properties, however, this could ease slightly as property prices become more realistic, and more investors are able to buy properties. This does remain to be seen as we are also in the middle of a cost of living crisis, which could continue to put people off buying properties & have them continuing to look at rented accommodation instead.
Tenants looking for smaller homes
On the topic of the cost of living, many tenants are unable to keep up with this rapid rise in rental prices and are looking for more suitable options in terms of their rented accommodation.
We're seeing 2-bedroom apartments becoming increasingly popular, and properties with all bills included are currently the most sought-after on Rightmove.
Whilst we may see some renters leave the market and more landlords enter the market as both groups will be able to afford to buy a property, it is still uncertain as to how the demand & supply levels in the PRS will play out in 2023. Zoopla's prediction is that growth will be sustained, although in many areas the rapid rise in prices is unsustainable and so they are beginning to plateau.
What do you think will happen to rental prices, tenants, buyers, and also landlords as we enter 2023?
If you're wondering where it could leave you & your property, request a callback with one of our team below
