Rental Market Review

There is limited scope for rental growth

The rental sector has recovered more slowly from lockdown than the sales market. It was not until the end of July that the number of let properties (homes with new tenants) was back to the same level as last year. The sales market returned to its 2019 level of activity a month earlier.
 
During lockdown, there were about 200,000 fewer rental moves than normal which is not surprising. But the market appears not to be bouncing back – to the surprise of many observers. We explore the reasons why.
 
Since the easing of lockdown, the number of landlord purchases has remained lower than in the same time last year, a trend that began in 2016 after the imposition of the stamp duty surcharge.
 
The number of buy-to-let investors looking to buy is now moving upwards. But the increase represents only half of the rise in owner-occupiers who are house hunting. The reluctance of landlords to invest is lowering the supply of rental homes which may put a floor under rents at some point in the future.
 
For the moment, the number of homes available to let is down in every region, except London. But tenant demand is slackening, as tenants leave rented accommodation to climb onto the housing ladder: first-time buyers are leading the sales market recovery.
Equally some tenants served notice between April and June and moved back home to reduce their outgoings.
 
Before the pandemic, rents were on an upward trend, driven by rising real incomes and a decrease in landlord purchases weighing on the number of homes available to rent, particularly in the South.
 
Now, however, tenant numbers are down on last year in eight of the nine English regions, with few signs of any pick-up. This is leading to a fall in rents, particularly in the South and London. The centre of London is the location most affected because fewer international students, tourists and people on business trips are seeking accommodation. Equally some urban tenants are also leaving the cities in search of more space.
 
Since late March, tenants have been exposed to a similar set of forces as those buying a home. Some tenants have seen their incomes reduced, although arrears levels remain a small fraction of those who have taken a mortgage holiday. And in similar fashion to many buyers, tenants have demonstrated an insatiable appetite for outside space by moving to the suburbs.
 
While this points to the rental market carefully creeping back to pre-pandemic levels of activity, so far its recovery has been more ‘U’ than ‘V’ shaped.