Why is the private rented sector withstanding economic turmoil better than the property sales market?
The housing market is declining for the first time since the start of the COVID-19 pandemic. Building society Nationwide reported a 0.9% fall in average prices from September to October. The Royal Institute of Chartered Surveyors has also now reported six consecutive months of falling buyer inquiries.
The main question now is how deep the downturn will be. Estate agency Knight Frank has predicted a 5% fall in house prices in both 2023 and 2024. Lloyds Banking Group, the UK’s biggest mortgage lender, expects an 8% fall next year.
In contrast, the rental market looks pretty buoyant. New stats from estate agency Hamptons found that the average monthly rent in the UK passed £1,200 for the first time last month. Some property professionals predict that the rental market will outperform sales for years to come.
Activist groups have cried foul, with the London Renters Union accusing letting agents of pressuring landlords to raise rents, while London Mayor Sadiq Khan has called an emergency summit on private rents – and a rent freeze.
A healthy PRS – or a warning sign?
But far from showing the good health of the private rented sector, the latest rent rises highlight an ongoing issue: a shortage of supply. The number of new rental listings in September was a third lower than it was in 2019. And the downturn in the sales market is only likely to make the gap between supply and demand bigger.
Figures from property platform Rightmove show that the rising cost of mortgages has hit first-time buyers (FTB) hardest. FTB demand was down 26% in October, compared to 17% for second-steppers, meaning that more people who would previously have bought a home will now keep renting. In the worst case scenario, they could even be joined by some current homeowners unable to afford increased mortgage costs alongside rising food and fuel bills. Meanwhile, as the queues outside letting agencies in university towns show, young people are still looking to leave the nest.
On the supply side, housebuilders have been hit particularly hard by the fall in demand, and are scaling back new home construction in response. And far from taking advantage of the record rents on offer, industry analysts say that landlords are quitting the sector.
The biggest opportunity might be for agents. Lettings commission can provide a reliable source of income when sales decline, especially when agents have the right tools to manage a portfolio in an admin-efficient way.
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