Did you know we're in the busiest rental market in over 20 years? That's according to Spareroom, the room & flatshare listing site, which, by their data, says this is the busiest market they've seen in their entire history dating all the way back to 1999.
If this is one of the busiest markets in a long while, why are we suddenly in a whirlwind of demand, where has it come from, and what are the factors pushing it forwards?
These are just a few of the questions we hope to answer in this article.
More & more landlords leaving the market
Many landlords are leaving the market, which isn't news to many people in the property industry.
For the last few years, the Conservative Government has stressed their desire to make the current generation one of 'generation buy' rather than 'generation rent'. This has meant more restrictions when it comes to buying & managing properties on the side of landlords & investors, and more savings and schemes to help first-time buyers get on the property ladder.
One of the factors making it more difficult for landlords to buy properties is the additional 3% stamp duty tax they have to pay on the value of a property if it is a second home above the value of £40,000. On the other side of the coin, there is now a much higher threshold for first time buyers in terms of the value of the property they do not have to pay stamp duty on, meaning they will receive larger tax savings which may allow them to put more towards a property. They also had 95% mortgages during 2020, 2021, and 2022, allowing them to outbid many investors who often have to put at least 25% of the purchase price of a property down in cash when they buy.
This is on top of increasingly tight regulations, and of course the Renter's Reform Bill, which many landlords (53%) feel will have a 'major and negative' effect on the PRS. Many landlords, whilst more effective possession proceedings have been suggested as part of the bill, still feel that much of the legislation involved massively benefits tenants both good & bad, and will have a negative effect on landlords & their properties. Abolishing Section 21 is a big sticking point for many landlords.
Section 24 tax, which was announced back in 2015, whereby a landlord pays income tax on the the value of the rent they receive from a property, including the mortgage repayment, whereas before you could claim your mortgage interest & other property finance as tax deductible. A lot of landlords have opted to form company structures that hold their assets to avoid this extra expense, however many have still felt it isn't worth it to continue to keep their property.
Property price surge leading to more renters
Since 2019, property values across the country have increased by around 22.4% in the past 3 years. Going by land registry data, the average price of a UK property in February 2019 was £227,738, compared to £278,685 in February of this year. That's an increase of just under £51,000 or 22.37%.
With prices rising so quickly, many buyers are finding it difficult to keep up, and are looking at renting as an option in the shorter term whilst they either wait for prices to (hopefully) come down or save for a bigger deposit.
Since the first COVID lockdown ended, the property market on the sales side of things has also seen unprecedented demand, with record low numbers of supply throughout most of 2021 & some months earlier this year. Many home-movers reported not being able to get an offer accepted or find an appropriate property on the market for their needs once accepting an offer on their current property. This also led many to look to the rental market for a temporary solution so they could complete the deal to sell their house, increasing demand for privately rented homes further.
Students coming back into the private rented sector
Throughout COVID, many students opted to stay at home & have their lectures online or defer a year until they could go to their chosen university when lectures were back in person, and therefore move there. July of this year saw a 15-20% rental rise in many cities with one or more universities, as many more students needed accommodation as they entered their second or third year at university than the year previously when most lectures had been online.
Many current renters are staying in their properties longer due to the demand
With the massive rise in demand in the market pushing rents up and ensuring record low times to let a property, many tenants who are happy in their accommodation are opting to stay for another term rather than find another, or more expensive place to live in. With the cost of living rising, tenants are happy to stay in their current place at the same monthly rate as the previous term, which almost 3 in 4 landlords are considering offering if they have good tenants whom they want to keep in the property.
This factor has meant that along with more landlords selling their properties, there are less properties coming up for re-let as tenants extend their stay.
The current state of the rental market...
It is estimated that overall, there are 266,000 fewer rental properties in the sector compared to 5 years ago, and, right now, PropertyMark put the number at 49% fewer properties available to rent compared to the 3-year average.
All of these factors can be seen at play when we look at the London room rental market, where the number of tenants looking for rooms has almost tripled since the end of the January lockdown in 2021 to 106,000 people in this market. There are only 15,000 rooms currently advertised on Spareroom in the area.
To conclude, there are many factors at play that are creating this storm of demand & lack of supply, and forces influencing them. However, it doesn't look like an answer is on the horizon over the coming months. With the Renter's Reform Bill set to come into force before May 2023, we anticipate many landlords won't want to invest in the upgrades that may be necessary to continue to be compliant with these new regulations, and of course, those landlords who are extremely disgruntled with some of the legislation in there. It is also estimated that between 1 & 2.3 million additional homes will be needed in the PRS over the next 10 years to cope with demand levels, with a predicted 11% rise in the number of renters between 15 & 24 years of age during the next decade.
With the cost of living starting to bite, perhaps we will see rental prices begin to cool as tenants begin to lose ground & can't match the heavy increases in rent. Or perhaps we will see a further increase in landlords leaving the market and therefore a shortened supply. With house prices & demand for properties beginning to cool as a result of additional costs people face in the UK right now, the number of people renting between home moves may also begin to be relieved, lowering demand for rented accommodation over time.
Either way, time will tell as we enter a very interesting, but potentially alarming year ahead in the economy & private rented sector.
If you're a landlord & you're looking to let your property in this current market, looking at solutions to your increased costs & compliance, or even looking to leave the market & sell your property, you can request a call with our expert advisors below to help you with your current situation.