Rental market boom ‘on the horizon’ as homebuyers struggle

Rental market boom ‘on the horizon’ as homebuyers struggle

8:01 AM, 2nd November 2022, About 3 months ago 7

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The nation’s rental market could be in for a boom as historic housing market trends show that a decline in property sales also leads to a boost in the private rental market stock.

That’s according to Alliance Fund, the end to end real estate fund, which analysed both the sales and rental markets during the economic downturns seen during the Great Recession of the 2008/09 financial crisis and the more recent downturn spurred by the Covid pandemic.

Their findings show that in 2008 when the Great Recession hit, property sales volumes across England fell by 49.3% on an annual basis.

They then continued to fall by a further 3.1% the following year before rebounding by 6.4% in 2010.

Level of privately rented stock available to tenants across England

At the same time, the level of privately rented stock available to tenants across England rose by 8.2% in 2008, an increase of 261,474 rental homes in a single year.

This was followed by a further 7.6% annual increase in 2009, with the addition of a further 261,264 privately rented homes pushing the size of the PRS to a record 3.705m homes.

When the initial market uncertainty of the Covid-19 pandemic hit, the level of homes sold across the property market in England also took a hit, falling 15.9% in 2020, by far the largest annual rate of decline seen since the Great Recession.

In contrast, the growth rate of the private rental sector had been showing a steady decline since 2009 and, since 2017, had been reducing in size until 2020.

However, when the Covid market downturn hit, the level of privately rented stock available across the market increased by 1.1% in a year, the first increase since 2016.

Private rental market has increased

When analysing the market over the last two decades, the research by Alliance Fund shows that sales volumes have increased at a rate of 4.7% per year when the market hasn’t been blighted by an economic downturn, whilst the private rental market has increased by an average rate of 4.1%.

In contrast, during periods of economic instability, sales volumes have fallen by an average of 22.8% per year, while the rental market has grown at an average annual rate of 5.6%.

The CEO of Alliance Fund, Iain Crawford, said: “The jury is still out with respect to the current turbulence plaguing the property market and just what impact this will have in the long-term on the ability of homebuyers to secure mortgage finance, as well as the knock-on effect to house prices if they can’t.

“However, historic market trends show that should the housing sector take a hit, the nation could be in for a rental market boom, as more and more of us remain reliant on the private rental sector in order to keep a roof over our heads.

“This reduction in buyer demand will come as a worry to those investing and delivering new housing stock to the market, as they simply won’t be able to capitalise on the same level of opportunities available to them in a buoyant market.”


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Comments

David Judd

10:15 AM, 2nd November 2022, About 3 months ago

What the market gives us on one hand the Govt takes on the other. The White Paper is about to add more woes for landlords especially if they don't allow mortgage interest as a deduction if properties held in a limited company.

David Houghton

10:29 AM, 2nd November 2022, About 3 months ago

Reply to the comment left by David Judd at 02/11/2022 - 10:15
You are right, rents will be going up. Shelter will be screaming, although they are one of the key drivers behind the new legislation.

Landlords income won't improve due to higher costs, but still get villified.

Mark C

11:16 AM, 2nd November 2022, About 3 months ago

Reply to the comment left by David Judd at 02/11/2022 - 10:15
I have not seen anything about a white paper disallowing mortgage interest in Limited Companies... do share.
This would go against the fundamental company P&L of Revenue - Costs = Profit. It's a bit like telling Tesco the cost of your goods is not allowable for tax calculation.

Seething Landlord

11:35 AM, 2nd November 2022, About 3 months ago

Reply to the comment left by Mark C at 02/11/2022 - 11:16
That's exactly what S24 has done for unincorporated landlords. Did you not know that?

Mark C

12:05 PM, 2nd November 2022, About 3 months ago

Hi Seething Landlord
Yes I know that but think it's highly unlikely they will not allow interest payments as deductions and they would be dumb to do that as it won't stop landlords, they will just think of further innovative ways.
HMRC already cap the amount of interest that is fully deductible here: Restriction on Corporation Tax relief for interest deductions, but its £2m but you would need £30m in loans at 6.5% to hit this.
If you are moving to a limited company structure there are some tax reliefs - check with your accountant

Seething Landlord

12:14 PM, 2nd November 2022, About 3 months ago

Reply to the comment left by Mark C at 02/11/2022 - 12:05
Do not underestimate the ingenuity of government either. S24 took us all by surprise and the reaction was "they can't do that". But they did and show no signs of relenting, despite the rearguard action still being fought.

Helen

16:57 PM, 5th November 2022, About 3 months ago

Logically the rental market should grow as people can't afford to buy until later in life. And it has grown. However, recent and possible future regulations, impossible future mortgage interest payments etc etc have meant that the rental market has contracted. This is why there is more homelessness, rent rises etc.
The rental market will continue to contract and only those that are 'on the outside' and don't know the financial pressures on us (mostly mortgage holders) will spout out a load of rubbish saying that it will expand.

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