Affordability will hit tenant demand and rent rises in 2023

Affordability will hit tenant demand and rent rises in 2023

10:44 AM, 29th December 2022, About 2 years ago 3

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The prospect for big rent rises in 2023 is slim with affordability already hitting a tenant’s ability to pay rent, one analysis reveals.

According to Zoopla, rents rose by 12.1% in 2022 but rent now accounts for 35% of a renter’s income.

In total, the property platform says that tenants spent £5.4 billion on paying rent this year.

And tenants are increasingly looking for affordable options when looking for homes to rent.

‘The year that rents hit the least affordable level’

Richard Donnell, Zoopla’s director of research and insight, said: “2022 was the year that rents hit the least affordable level since we started tracking rental affordability a decade ago.

“Rents rose 12.1% over the course of the year – well ahead of earnings growth at 6% – and the average renter now puts 35% of their income towards rent.

“Unfortunately for renters, the market continues to face a chronic imbalance between supply and demand, with supply of rental homes 38% lower than the five-year average and demand 46% higher.”

‘Rents rose the fastest in large cities’

He added: “Rents rose the fastest in large cities and renters increasingly sought one-bedroom flats to find better value for money.

“We expect stretched affordability to hit demand and the pace of rent increases in the first half of 2023, with rent growth slowing to 4% to 5% by the end of next year.

“Increasing investment in new rental supply from multiple sources is the main route to reducing rental growth and making for a more sustainable private rented sector.”

Upbeat view for property prices in 2023

Zoopla has also looked at the UK’s residential housing market with an upbeat view for property prices in 2023.

Richard says: “At the start of the year, the UK housing market was still feeling the motivational impact of the pandemic on our desire to move home.

“The shock of higher mortgage rates hit buyers in October, with demand now down 50% and sales agreed down 28% compared to last year.

“But house prices rose 7.2% over the year and 1 in 14 homeowners moved house, making 2022 another strong year for the market.”

‘Forecasters have made bearish predictions for 2023’

He added: “While many forecasters have made bearish predictions for 2023 – anticipating house price falls of 8% to 12% and a significant fallback in sales numbers – we’re more positive about the outlook.

“We’re anticipating 1 million housing sales in 2023, supported by more working from home, the ongoing spike in retirement and a greater consideration of home running costs.

“New mortgage rates are manageable: banks are well-capitalised and ready to lend. We expect mortgage rates to be at 4.5% to 5% in January 2023 which will add to buying costs, but not excessively.

“Overall, I think 2023 may well disprove the gloomy forecasts made when the outlook for mortgage rates looked much worse.”

Zoopla’s year in numbers for the housing market:

  • 7.2%: average house price gain for homeowners
  • 25 days: how long it took to sell a home
  • 94%: percentage of asking price achieved in November 2022
  • 3 bedroom semi-detached: most in-demand property type
  • 1.3 million: number of homes sold
  • £369 billion: what the UK spent on buying property
  • 11.2%: house price growth in Wigan, 2022’s best performing market
  • £1.18 million: average house price in the most expensive market, Kensington and Chelsea.

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12:40 PM, 29th December 2022, About 2 years ago

'25 days: how long it took to sell a home'

I would suggest this is the amount of time between advert and offer accepted. All the evidence points to 'completion' taking at least 4 months. I sold a flat in July. I had an offer within a month and then it took 6 months to complete!

Richard Burton

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9:41 AM, 31st December 2022, About 2 years ago

I have been a landlord for 14 years and follow the financial and property markets closely. I'd be amazed if we don't see falls in property prices of more than 8-12%!!

I think we could be seeing 15-20% falls from the peak by the start of 2024. I do think the recovery could be swift returning to rises by 2025/26. However, in the next 12 months we're going to see a sharp contraction. Prices have risen for about a decade now, fast in the mid 2010s, slower in the late 2010s then crazily fast in the pandemic finally cresting in 2022.

With people coming off 1-2% mortgages and going to a 4-5% deal with energy rises and costs of living rises on top we have a near perfect storm of unaffordability brewing. I do believe economic conditions will improve this year, but we have a year of high inflation already baked in. That is still taking its time to bite as many people, myself included, are still sitting happily on fixed deals. However, once they expire the financial shock is going to be painful. Savvy people can see it coming down the track and have pulled out of deals or are tightening their purse strings in readiness.

I spoke with an agent before Christmas who told me they had virtually no new instructions in December even though they had a queue of people desperate to sell. That's because their advice was sit tight because the market will improve in 2023. If they list now it will be a race to the bottom because nothing is selling. The worst part about that is there are PRS LL's who desperately need to sell because they are coming off a cheap deal and haven't got the yields to support paying the higher priced mortgage. These are people who will have to sell because they can't make ends meet and it's these people who will drive the price down. Those who can afford to sit tight will sit and watch the market fall and take the hit. It'll be a race to the bottom for those who can't weather the storm though. I'm guessing they'll be plenty of people who will just be glad to get out and break even. As long as they can make the sale they'll list the house at a bargain price.

To illustrate this. I have one house with two mortgages on it both with the same lender. It has about 70% LTV, so is not overleveraged. The larger of the two mortgages expires in Q2024. My total mortgage will more than double each month. This will take the house go from making a profit to making nothing. Even though it grosses £15k per year I'll barely see a penny because the mortgage costs will be about £10k and maintenance and tax will eat up the other £5k. If it wasn't for the stupid rule making mortgages non tax deductible it would still be profit making, but that's beside the point. It's a house with a healthy rent, healthy equity and it makes no money once on the current mortgage rate. Anyone with a slightly worse position will be in dire straits...and that's a lot of people.

Good luck with your rosy prediction in the article above. I can only hope it is true for all our sakes but based on my points I can't see it. Batten the hatches we're in for a rough ride.


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11:25 AM, 31st December 2022, About 2 years ago

Reply to the comment left by Richard Burton at 31/12/2022 - 09:41
I think you are right on all points. My remaining BTL makes no money after the mortgage doubled over this year. Big mistake in not fixing years ago, but this is a joint mortgage, and my ex- is non-co-operative! I have now raised the rent twice after not doing so for 5 years; another mistake. I have 4 years before I need to re-mortgage, and rental income is not critical for me. I want to sell, but will not do so in this 'race to the bottom' market. I believe the economic situation will improve during 2023, and can afford to sit it out, but I am now subsidising my tenant. Sadly, many landlords who entered the PRS in the past few years, and do not have the yields and/or the equity in their properties, will have a tough time.

After 20 years of BTL as a wealth creator, and years of persistent pressure on the PRS, we are now seeing a big re-set in the rental market.

Many have been saying is it's necessary. But... faced with such a hostile environment, who do they think will provide the desperately needed housing for a rapidly growing population?

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