Introduction:

The UK rental market has been witnessing unprecedented changes over the past few years, with new records being set quarter after quarter. According to the latest Rightmove rental tracker, average asking rents for new tenants outside of London have reached an all-time high of £1,231 per calendar month (pcm). This figure is a staggering 33% higher than pre-pandemic rates in 2019, representing an increase of over £300 from £923 pcm. In contrast, the average asking rents for new tenants outside of London rose by just £71 (8%) between 2015 and 2019, indicating the rapid surge in rents since the pandemic struck.

Explosive Rent Growth and Tenant Demand:

The rental landscape is witnessing a significant increase in demand, surpassing even the frenetic levels experienced last year. Tenant demand is currently 3% higher than in 2022 and a staggering 42% higher than in June 2019. While the yearly pace of rent increases for new tenants has slightly slowed down, it continues to hover near double-digit levels.

In the capital city, London, average asking rents have reached a new peak of £2,567, demonstrating a 28% surge (+£559 pcm) since 2019. Despite the quick rise in rental prices, homes are letting at remarkable speed, and landlords often find themselves faced with long queues of prospective tenants eager to view and rent their properties.

Supply and Demand Imbalance:

The gap between supply and demand has narrowed slightly compared to the previous year, with available rental properties up by 7% compared to June 2022. However, this figure remains 42% lower than the pre-pandemic levels in 2019, indicating that the rental market still has a long way to go to reach its former state of equilibrium.

Challenges for Landlords:

Landlords are currently grappling with a multitude of challenges from various directions. A recent study by Rightmove revealed that government sentiment towards the industry (47%), rising taxation (41%), and increasing compliance requirements (33%) topped the list of landlords’ concerns. Furthermore, a quarter (25%) of landlords expressed worries about the rising cost of buy-to-let mortgages.

This combination of challenges has led some landlords to sell their properties. Notably, 16% of properties currently for sale were previously available on the rental market, an increase from 13% in January 2019. Landlords, especially those with lower Energy Performance Certificate (EPC) ratings, are considering selling their properties rather than making improvements to meet the proposed changes to EPC requirements from the government.

Landlords’ Perspective and Tenant Retention:

Despite the challenges, landlords understand the value of having good tenants in their homes and are determined to retain them for longer durations. A majority (57%) of landlords reported that, on average, tenants choose to stay in their properties for more than 24 months, with only 8% indicating that tenants stay for a year or less.

Expert Insights and Future Outlook:

Rightmove’s Director of Property Science, Tim Bannister, suggests that the number of available rental properties is gradually improving compared to last year’s record lows. While this provides tenants with more options, it will still take time to reach pre-pandemic levels of housing stock. The current low supply and high demand trend is driven by an expansion in the number of people looking to rent, rather than landlords opting to sell their properties en-masse.

Allison Thompson, the national lettings director at Leaders Romans Group, acknowledges that some landlords are contemplating selling their properties due to interest rate rises. However, most landlords are mortgage-free, and the advice is to avoid knee-jerk reactions. The almost total absence of voids, where properties are left empty between tenants, is helping to offset the increased mortgage costs. Interest rate rises are expected to reverse in early 2024.

Conclusion:

The UK rental market is experiencing historic changes, with average asking rents for new tenants outside of London reaching new record highs and demand surging to unprecedented levels. Despite the challenges faced by landlords, the value of good tenants and efforts to retain them are evident. As the market gradually evolves, experts predict improvements in the supply of rental properties, offering tenants more choices. With interest rate rises anticipated to reverse, the rental market’s future remains intriguing, promising a more stable and balanced landscape for landlords and tenants alike.