From both a personal and a business perspective, we’ve all had to find our own way through the rollercoaster of the past two and a half years.
Events over this period continue to have many knock-on effects, some of which are further magnified by recent economic and political factors.
Over the summer, unsurprisingly, we have seen the purchase market slow. This is partly due to the seasonal effect and partly due to a number of potential first-time buyers (FTBs) — as well as those homeowners looking to take their next step up the property ladder — taking stock of rising outgoings, inflation and mortgage rates to reconsider their immediate property-related aspirations.
New-build numbers are still not hitting government targets and fewer homeowners are vacating properties that may attract and fill the FTB void
Of course, this lull is exacerbated because it comes on the back of a period where the purchase market was flying and the level of transactions went through the roof, as a huge number of borrowers benefited from a stamp duty holiday that lit a fire under the UK housing market.
Surge in rents
In addition to growing tenant demand, new-build numbers are still not hitting government targets and fewer homeowners are vacating properties that may attract and fill the FTB void. Hence the rental market faces a chronic imbalance of supply and demand that has led to a surge in rents.
This was evident in the latest rental market report from Zoopla, which outlined that rent growth had accelerated from an annual rate of less than 2% in July 2021 to 12.3% a year later. Average rent was suggested to have increased by £115 per month since last year, to stand at £1,051 per calendar month.
The data noted a steady reduction in the proportion of renters looking for two- and three-bed houses and an increase in demand for one- and two-bed flats
Rent growth is also said to be outpacing earnings growth in all regions and nations of the UK.
The stock of homes for rent remains almost half the average compared to the past five years. The average letting agent has just eight homes available to rent — half the number of the summers 2017–19.
The flow of new homes to rent is running 7% below the long-term average as renters stay put to avoid rent increases.
Changing strategies
For landlords, it’s clear that renters are adapting their strategies and starting to seek out smaller homes with lower rents and running costs.
This is resulting in a shift in focus onto smaller, more compact living accommodation, which is in contrast to the early part of the pandemic when people were looking for more space — whether indoors or outdoors — to accommodate both working from home and the fact more time was being spent at home.
The average letting agent has just eight homes available to rent
Looking at this shift, the data noted a steady reduction in the proportion of renters looking for two- and three-bed houses and an increase in demand for one- and two-bed flats over 2021 and 2022. That trend has accelerated in recent weeks.
The shift in demand partially reflects localised changes in supply, but the over-riding impact reflects affordability and cost-of-living concerns. Outside London, the current difference in rents charged for a two-bed flat and a three-bed house is £105 per month, which translates to £1,260 per year in rental cost.
Host of trends
After operating in the buy-to-let market for many years, we are used to seeing a host of trends emerge, and it’s always interesting to observe how landlords react to these.
Renters are seeking smaller homes with lower rents and running costs
The final quarter of 2022 will be a challenging period, but also one in which opportunities continue to emerge for those landlords who are best positioned to take advantage of them.
Cat Armstrong is mortgage club director at Dynamo
