The UK property market has endured a whirlwind of chaos over the last few months, particularly since the (now former) Prime Minister’s mini-budget at the end of September. But besides soaring mortgage rates, there has also been significant rises in rental prices. As the number of tenants searching for accommodation increases, many landlords are raising rent or exiting the market completely. Meanwhile, homeowners are looking towards rentals as another source of income, considering buying a holiday-let or letting their existing property. It seems that the year ahead may be another one of surprises when it comes to the rental property market.
According to figures published on Rightmove, the national average for rent prices increased by 11% in Q3 2022, when compared with 2021. The increase has largely been attributed to low property availability during the pandemic, where similarly to house prices, rental prices are impacted by supply and demand. Now, recent reports claim that landlords have been inundated with prospective tenants, with a ratio of 13 tenants per property. This means that there are no way near enough rental properties to accommodate the demand at the moment. Moreover, many landlords have exited the market, meaning even less rental accommodation is available.
It’s not only the availability of properties that impacts the price of tenancy. The cost of living has pushed prices higher everywhere, with the cost of rent being no exception. In fact, Property Reporter revealed that 90% of landlords had increased or are planning to increase rents as a result of the Bank of England’s interest rise. Moneyfacts revealed that the average two-year buy-to-let fixed rate at the end of September was 68% higher than the December 2021. According to survey findings outlined by Property Reporter, 70% of the 600 UK residential landlords surveyed felt they needed to raise rents in order to afford the increase in mortgages. Likewise, mortgage rates have been inflated to prices not seen since the last pandemic, which caused many lenders to reprice their products. This has made obtaining a mortgage more challenging and simply unaffordable for many, arguably leaving many to remain renting and thus leveraging the number of tenants.
As a result of high rental prices and fierce competition among tenants, many may find themselves subject to uncertainty or less than ideal housing situations. The Department of Levelling Up, Housing and Communities claimed that over 1.6 million people are living in dangerously low-quality housing, due to a lack of other options. Consequently, the Generation Rent campaign has been promoted by Labour MP, Catherine West, who wrote to Simon Clarke, Secretary of State for the Department, to urge the government to publish a timeline for rental reforms. Generation Rent, which refers to young adults who are unable to get on the property ladder and are now suffering in the rental housing system, has been fighting for a rent freeze since August this year. Scotland has already passed a rent freeze, and London Mayor, Sadiq Khan is also urging the government to permit local rent control. However, it’s unclear if a national English rent freeze will come into force.
Despite the majority of landlords reportedly raising their rents, other research conducted by Shawbrook Bank revealed that one in twelve tenants had their rent reduced – seemingly showing that some landlords are willing to freeze or reduce rents in order to help struggling tenants. But as interest rates are set to rise again, this may not remain sustainable. And the majority of tenants, or prospective tenants, are likely to have a difficult time if things don’t change. Experts anticipate that as mortgage rates continue to surpass affordability for homeowners, there will likely be a surge in properties put on the market in the next two years when current fixed rate mortgages expire. While there may be more properties for sale, the demand for rental properties is still likely to remain high.
Concurrently, some homeowners are considering becoming a holiday let landlord as a way to make extra income. New research from mortgage lender Together found that 24% of adults in the UK are willing to consider being an owner of a holiday let, which more than doubled among adults under 34 years old. The appeal of a second income in a climate where staycations have boomed is logical, with research showing potential profits is the biggest motivator. However, the survey also revealed that owners wanted to make use of the property they already own – particularly those over 55 years of age who were thinking of a means to fund their retirement.
In a separate, simultaneous poll conducted by Together on 100 existing holiday-let owners, extra income and convenience were cited as the leading positive factors of hosting. A third also enjoyed the feeling of being an entrepreneur and over 45% liked that they could pass on their holiday property to others in their will. Of the sample, 88% recommended becoming a host on Airbnb, which remains one of the most popular holiday-let platforms. Reflecting on the data, Marc Goldberg, CEO at Together, claimed that the leading attraction of holiday-lets over long-term rentals is the greater yield potential and possibility to adjust prices at peak seasons or according to inflation rises.
Although the post-lockdown era allowed many of us to begin travelling abroad again, it seems that the economic climate could maintain the popularity of staycations we saw throughout the pandemic. This could make holiday lets more attractive in the coming years, as forecast by the survey findings. However, the survey did note that over 20% of people felt they would be unable to obtain a holiday let mortgage, and the stress of renovation and time investment further swayed almost a third of participants. Despite some hesitation, many seaside towns in England and Wales are witnessing increases in ‘entire homes’ being made available for rent, where there was a 56% increase between 2019 and 2022.
The next year will be an interesting one in the market of lettings, with decreased buy-to-lets and increased holiday-lets anticipated. However, the demand for both is high, meaning that buy-to-let properties may become attractive again if mortgage interest rates begin to fall again. This doesn’t seem likely in the immediate future, however the rate of change in the property market is unrivalled – meaning anything can happen at any time. For anyone considering purchasing a property, obtaining an accurate valuation and seeking expert advice can help mitigate some of the risk.