Whether you’re a tenant or a landlord, navigating the rental market can be challenging even in the best of times. Unfortunately, as the market stands today, it’s hard to see how things may improve in 2024.
Higher rents, fewer properties
Sharply rising rents and a shortage of rental properties meant 2023 was another difficult year for tenants. According to Hamptons, the average rent on a newly let home in Britain stood at £1,348 per calendar month (pcm) in November, which was 10.2%, or £125 pcm, higher than a year earlier. The estate agents added it was the seventh double-digit rise seen in the space of 12 months. Similarly disquieting figures from the property portal Zoopla in December suggested average rents on new lets increased by 9.7% in 2023, and have risen by around a third in three years, adding £3,360 to the rental costs of tenants each year.
An imbalance between the supply and demand of rental property is mainly to blame. While Zoopla reported demand for rental property fell during 2023, it still remains 32% higher than the average over the past five years. At the same time, the supply of rental properties continues to fall. Hamptons reveals landlords have sold more properties than they’ve bought every year since 2016. As a result, it estimated that there would be 294,300 fewer rental properties available by the end of 2023 than there were seven years earlier.
“Our member letting agents continue to report a growing disparity in the number of tenants coming to the market compared to the number of properties available to rent,” said Nathan Emerson, CEO of Propertymark, a trade body for property agents, in an email. “As a result, many renters have found it difficult to secure a home.”
Options set to remain limited
Now firmly in 2024, it is difficult to make a case for this situation turning around unless the government decides to intervene. Putting the brakes on the number of landlords selling up would represent a start, but that seems improbable.
“The number of available rental properties is likely to remain limited [in 2024], given there is already a shortage and mortgage rates are expected to stay elevated for longer,” predicted Karen Noye, mortgage expert at wealth management firm Quilter, in an email. “Landlords are facing higher mortgage and insurance costs, and that is not likely to change in the short term, so rental costs are also likely to remain high as a result.”
Worryingly, Noye also foresees a scenario where there could be an exodus of landlords with small one or two property rental portfolios from the buy-to-let market.
“In previous years, investors looking for alternative investment options looked to property as a good option as house prices had increased rapidly,” she explained. “Now, however, new investors will likely be put off as the environment is very different given the tax changes, higher borrowing costs and less protection on offer for landlords.”
Rents expected to rise again
A recent survey reveals the problems landlords face to make the sums add up. According to buy-to-let lender Landbay, around two-thirds (65%) of landlords said rising interest rates were their main reason for selling, while just under a third (30%) said the rent they charged failed to cover the cost of their mortgage.
“Landlords are struck with continuous financial and regulatory hurdles which have meant for many, the feasibility to afford or even want to take on the forever changing landscape of being a landlord in the private rented sector is becoming an increasing concern,” said Emerson.
If rates on buy-to-let mortgages head lower, perhaps some landlords who are struggling with the viability of their finances may decide to put any potential exit plans on hold. Of course, another alternative, which tenants won’t want to see, is to pass the extra costs on.
“Lettings agents are unfortunately expecting rents to rise again [this] year, although perhaps not quite as fast,” said Sarah Coles, head of personal finance at investment platform Hargreaves Lansdown, in an email. “The problem is that so much of the mortgage market is fixed that higher rates feed incredibly slowly into the market, as landlords remortgage.
“Those landlords who are hit by higher repayments are likely to hike rents, and there’s a risk that as rents go up around them, those who are unaffected will take the opportunity to raise rent too – so we could see more waves of [rent] rate rises in 2024.”
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