The United Kingdom’s rental market is grappling with a significant shortage of available properties as tenant demand continues to outpace landlord instructions, according to a recent report by the Royal Institution of Chartered Surveyors (RICS).
In addition to this supply-demand imbalance, the survey reveals a declining trend in house prices as the sales market experiences a slowdown.
In its findings, RICS highlighted that tenant demand surged for the third consecutive month in August, with a net balance of +47 among survey respondents noting an increase, although this marked a slight dip from the +59 recorded in July. Meanwhile, new landlord instructions saw a minor decrease, registering at -20 (compared to -19 in July), indicating a decrease in rental properties entering the market.
This stark contrast between rising demand and dwindling supply is expected to put upward pressure on rental prices over the next three months, with a net balance of +60% of contributors forecasting an increase. This reading stands as the highest since 2016.
Simon Rubinsohn, RICS’ chief economist, commented on the situation, saying, “The softer demand in the sales market is mirrored by the continuing strength of rental demand. The evident gap between rental supply and demand is reflected in the RICS Rent Expectations indicator, which remains near an all-time high.” He added, “Anecdotal comments from contributors suggesting that landlords are leaving the sector imply that the challenging environment for tenants is unlikely to improve in the near future.”
Sarah Coles, the head of personal finance at Hargreaves Lansdown, offered her insights on the RICS survey, stating, “Renters continue to face challenging conditions. Landlords are still exiting the market, and with a steady influx of new tenants, the concerning supply-demand imbalance persists.” Coles added, “The Bank of England acknowledges that the exodus of landlords from the market is not as dramatic as some fear. However, they concur that there has been a gradual decline over the past two years, attributed to factors such as stricter tax treatment and tighter legislation.” She concluded, “With the potential for higher mortgage rates to drive even more landlords out of the business, rents are expected to continue rising, with no relief in sight.”
The RICS survey also paints a bleak picture for the sales market, with house prices continuing to fall across the UK, marked by the RICS index recording its most negative reading since 2009. Respondents noted a decline in new buyer enquiries in August, with new sale instructions following a similar trend. Newly agreed sales also hit their weakest point since the pandemic.
While near-term sales expectations remain subdued among RICS members, the index suggests a slight improvement in the sales market over the next 12 months. However, this positive outlook is clouded by economic uncertainty and the high cost of mortgage finance, as stated by Mr. Rubinsohn.
Commenting on the prospects for the housing market revealed in the RICS survey, Ms. Coles from Hargreaves Lansdown remarked, “August is typically a quiet month, but this year it was exceptionally sluggish. Higher mortgage rates deterred buyers, and those who remained hesitated in the hope of further price drops.” She continued, “Although prices are declining, the pace is not swift enough to convince buyers to make a move. Those willing to make offers are driving a hard bargain.” Coles highlighted the ripple effect of sluggish sales, noting, “It becomes increasingly challenging to form property chains, and even when they do, the prolonged process leads buyers to reconsider paying a price they offered months ago.”
In summary, the UK’s rental market is grappling with a severe shortage of properties, while house prices continue to decline in the sales market. The RICS report points to a challenging environment for both renters and buyers, with little immediate relief in sight.