Lettings: Boiling Point
Rents are set to rise again this year in all regions of the UK, in a trend that will continue into 2024. But hard-pressed tenants seem likely to be spared the double-digit rent hikes of 2022.
Aneisha Beveridge, Head of Research at Hamptons says that affordability will put a cap on rents. As a result of such constraints, she is forecasting that the rise in the average UK rent should be limited to 5% this year. Another 5% increase is expected in 2024.
Beveridge comments: “Rents have already gone up sharply - by as much as 19% since January 2020. The monthly average in Great Britain is now £1,200, which represents 44% of the average tenant household’s income, against 39% a decade ago. The extra payments equate to an average of £2,351 a year for those households.”
The tougher environment will mean that landlords and tenants will have to adopt new strategies. Catherine Westerling, Head of Residential Lettings at Hamptons says that landlords may struggle to pass on higher mortgage costs to some tenants.
Indeed, such an exercise could even be counterproductive, as tenants will move to smaller homes to avoid being even more financially stretched. Westerling comments: “Most tenants are responsible: they know what they can afford to pay.”
Westerling predicts that the professionalisation of buy-to-let will gather pace in 2023, with more landlords operating through limited companies. More less experienced landlords could leave the game, unable to make the sums work.
As Beveridge’s research highlights, around half of landlords own their buy-to-let property with a mortgage. Towards the end of 2022, when mortgage rates soared, a landlord coming to the end of a typical two-year fixed rate deal faced 151% increase in repayments, that is an extra £4,500 a year. Rents would be required to rise by 33% to compensate.
But Westerling adds: “The majority of landlords who are in the business for the long-term, and have been through tougher periods before, should ride this one out. They’ve likely already accumulated an equity buffer to see them through.”
Hamptons research shows that rents rose in all regions in 2022, as a consequence of a decline in the number of properties to let which was 47% lower in October than in the same month of 2019.
Thanks to the surge in mortgage rates, it is now cheaper to rent than buy, as Westerling points out. This may be an opportunity for landlords. She says: “The weakness in house price could mean that 2023 is a good time to add to portfolios. Although investors will likely need to put down a bigger deposit than before.”
Inner London led the league with a leap of 27% in the average rent, as corporate and international students made their post-Covid return, boosting the areas delayed recovery. Rents in the London suburbs and commuter towns jumped by 11% and 7.5% respectively.
Beveridge expects that the cost of living squeeze and higher mortgage rates will support demand for homes to let. First-time buyers will find it even more difficult to accumulate the cash for a deposit, and so will stay in the rental sector for longer.
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