Lockdown rental stock shortage will see rents and deposits climb

Lockdown rental stock shortage will see rents and deposits climb

8:54 AM, 4th May 2020, About 4 years ago 4

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Research by rental deposit replacement scheme, Ome, has highlighted how a lockdown reduction in rental stock entering the market could result in higher rental and deposit costs for UK tenants.

Ome investigated the percentage of buy to let mortgage loans approved over the last five years as a percentage of all loans. The figures from the Financial Conduct Authority show that the number of landlords entering the market with new stock has slowly declined every year since 2015 with an average annual drop of -1%.

At the same time, the value of the buy to let market has also diminished at an average annual rate of -1% a year, now worth £35,661m compared to £37,424m in 2015.

Despite a declining level of stock entering the market, there has been growing demand which has seen the average UK rent climb by an annual average of 4% each year since 2015, now at £743 a month compared to £627 in 2015. The average cost of a rental deposit has also increased at an average rate of 3% each year over the last five years.

A similar increase this year would see the average rent hit £776, while the average deposit would reach almost £900 despite the recently introduced five week deposit cap. However, Ome predicts that any lasting reduction in rental stock due to the current pandemic could result in a much larger increase in cost for UK tenants in the long term.

Co-founder of Ome, Matthew Hooker, commented:

“Through no fault of their own, agents and landlords are facing a very tough few months with some tenants unable to pay their rent and some landlords facing much longer void periods due to a drop in market activity.

The buy to let market has already seen a notable decline in appetite following increases to stamp duty and changes to tax relief, with the number of buy to let mortgages declining steadily since 2016. It is no coincidence that rents have also climbed rapidly during this time.

As a result of these latest market developments, we could see many decide to exit the sector,  or opting to refrain from a buy to let investment for the foreseeable future at least. This further reduction in stock would have grave implications for the nation’s tenants who have already seen the cost of renting increase due to an imbalance between demand and supply.

The industry has already predicted an increase in rental costs due to the ban on tenant fees but with even less stock now likely to be available, this increase in rent and the upfront deposit required to secure a property could be far higher than predicted.

Of course, there are things you can do to lessen the impact of this increase before it materialises. Looking for, and securing a property now, can be easily done online with the view of moving post lockdown when it is safe to do so.

Opting for a deposit replacement scheme can also alleviate some of the upfront cost and essentially pay for your first month’s rent at the same time.”

United Kingdom 2015 2016 2017 2018 2019 Average Annual change
Buy to let (% of gross advances) 16.81 16.04 13.43 13.02 12.96
change -0.76% -2.62% -0.40% -0.07% -1%
Buy to Let VALUE – £millions 37,424 40,129 35,182 35,731 35,661
change 7.2% -12.3% 1.6% -0.2% -1%
Average rent £627 £643 £656 £677 £743
change 2.6% 1.9% 3.2% 9.8% 4%
Average Deposit £758 £766 £777 £790 £858
Change 1.1% 1.4% 1.7% 8.6% 3%
Lending statistics – Buy to Let FCA / Bank of Eng
Average private rent statistics
England ONS
Wales Gov.wales
Scotland Gov.scot
Northern Ireland NIHE

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Simon Williams

11:35 AM, 4th May 2020, About 4 years ago

Let's hope so. But right now my rents are falling off a cliff and I wouldn't be surprised if they fall 20% over the next 2 years. For example, the foreign and even domestic student rental market is expected to crash and even if you don't rent to students, their loss from the market means former student landlords looking for different customers.
Plus we have left the EU, so the inwards flood of unemployed young Spaniards and Italians etc looking for work (if unemployment in their countries is much worse than here as was the case after the 2009 downturn) won't happen. They'll go to Germany instead.

But I hope I'm proved wrong and that others are faring better out there than me.

Paul Shears

21:10 PM, 4th May 2020, About 4 years ago

Reply to the comment left by Simon Williams at 04/05/2020 - 11:35
I'm in a different sector of the market and it is just as bad. My income went negative as of today with absolutely no interest from potential tenants.

Rob Thomas

16:07 PM, 5th May 2020, About 4 years ago

This analysis by Ome uses suspect data. According to the ONS, private rents haven't risen by 4% a year - they have average 1.7% since the beginning of 2015 in Great Britain. And the idea that the coronavirus will create a shortage of rented property is without foundation.

Grant Harris

1:20 AM, 22nd June 2020, About 4 years ago

Shortage of rented property must be some kind of joke. We have a tenant database of mostly professionals and the odd student in West London. Many are returning home abroad, or have left to stay with family out of London. Add the deluge of Air bnb's now on the long term market means there is a over-supply and as a result rents are dropping and tenants have many options. I'd be interested if anyone can tell me what they have had to drop rents in London to fill rooms, or if there is some up to date data on estimated rent drop percentages since Covid hit.

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