Landlords face rent squeeze as supply falls – RICS

Landlords are facing renewed rent pressure as tenant demand rises and the supply of available homes remains constrained.

The latest RICS UK Residential Market Survey for May shows tenant demand recorded a net balance of +14%, while landlord instructions stayed firmly negative at -28%.

Rent expectations strengthened to +36%, the highest reading since May last year, as members continued to report pressure in the lettings market.

House prices down

House prices continued to edge lower with the net balance staying at -35% for the second month in a row.

Respondents in the South East and East Anglia reported stronger downward pressure on prices, while Northern Ireland continued to record price growth.

Near-term sales expectations improved to -25%, after readings of -32% and -34% in the previous two reports.

Over 12 months, sales expectations moved into neutral territory at +2%.

Price expectations remained weaker over the next three months, with a net balance of -45% expecting prices to fall.

Activity downturn stabilising

The organisation’s head of market research and analysis, Tarrant Parsons, said: “The latest survey data suggest the recent downturn in activity may be beginning to stabilise, with several key indicators broadly holding steady.

“However, as they remain in negative territory, it would be premature to interpret this as the start of a recovery.”

He added: “The decline in CPI inflation to 2.8% in April provided some temporary relief, but the Bank of England has signalled that further inflationary pressures are likely as higher energy costs continue to pass through.

“Against this backdrop, the prospect of further rate rises cannot be dismissed, and until there is greater clarity, market sentiment is likely to remain fragile.”

Sales market remains weak

The RICS report also shows the sales market remaining weaker with new buyer enquiries posting a net balance of -34% in May,

That’s unchanged from April and marks the first time since January that the headline demand indicator has not moved further into negative territory.

Agreed sales also held at -37% with more respondents reporting falling sales than rising sales.

Completion times lengthened again, rising to 21.5 weeks, the longest recorded since the dataset began in 2017.

Property sector reaction to the RICS UK Residential Market Survey

Tom Bill, the head of UK residential research at Knight Frank, said: “The Renters’ Rights Act has led to tight supply in the lettings market as more landlords sell up, which has ultimately made life tougher for tenants by pushing rents higher.

“The prospect of stricter regulations around energy performance certificates means other landlords are considering doing the same, which will keep upwards pressure on rents.

“It highlights the unintended consequences of government interventions in the housing market.”

Tomer Aboody, the director of specialist lender MT Finance, said: “With a further decline in demand and transactions, there is a lack of confidence in the market as buyers adopt a cautious approach.

“As the Chancellor targets landlords further with higher stamp duty for those buying second homes, would-be tenants are seeing rents increase as a consequence of lower supply.

“This demonstrates that further punishing landlords has the opposite impact to what the market actually needs.

“Until there comes a time when the government doesn’t regard landlords as the enemy, the fallout will be felt by tenants.”