Rents look set to rise as tenant demand grows – RICS

Rents are facing renewed upward pressure as tenant demand grows and landlord instructions remain in negative territory, according to the latest RICS survey.

In August, the net balance for tenant demand stood at +18%, while landlord instructions came in at -14%.

Also, +44% of respondents are forecasting rent rises over the next three months, up from +33% in July.

Over the next 12 months, RICS members say they expect UK rents to increase by around 3% on average.

Buyer demand improves

Meanwhile, homebuyer demand and agreed sales also moved away from August’s low, although both measures remained negative.

The balance for new buyer enquiries rose to -19%, its least negative reading since January and the fifth consecutive improvement, while agreed sales reached -17% compared with April’s low of -38%.

Expectations for sales over the next three months improved to -3% from -13% in July.

Looking 12 months ahead, +6% of respondents anticipated higher sales volumes, up from +3% previously.

Market recovery fragile

The organisation’s head of market research, Tarrant Parsons, said: “August’s results show a market that is gradually finding its footing, with key activity indicators having become progressively less negative over recent months.

“That said, any potential recovery remains fragile and faces two significant near-term tests.”

He added: “The Bank of England’s increasingly hawkish tone, on the back of renewed volatility in global energy markets, is a reminder that the borrowing cost outlook could yet deteriorate further.

“And with the October Budget approaching, speculation over potential changes to property taxation is adding another source of caution for both buyers and sellers.”

House prices remain weak

However, RICS members say that house prices remained under pressure, with the headline balance edging up to -28% from -29% in July and -35% in April.

Respondents continued to expect price reductions over the next three months, while their 12-month outlook was broadly unchanged.

New sales instructions recorded a balance of zero, compared with -2% in July, while market appraisals stood at -17% against a year earlier.

London remained more negative on prices than the headline figure, despite improving from July.

Northern Ireland reported rising values and the North West of England continued to record gentle growth.

Property sector reaction to the RICS survey

Tom Bill, the head of UK residential research at Knight Frank, said: “Rising rental values reflect one of the unintended consequences of the Renters Rights Act.

“Landlords are setting higher asking rents to reflect the greater risks they face around void periods and rent collection, against the backdrop of lower supply.”

He added: “After a spring slowdown driven by higher mortgage rates, demand has stabilised as borrowing costs reset and the government avoids fuelling the sort of pre-Budget speculation that has put buyers off in recent years.

“Prices are largely moving sideways but activity could be sustained through the autumn provided the Budget doesn’t reignite a mood of uncertainty.”

Jeremy Leaf, a north London estate agent and a former RICS residential chairman, said: “Continuing uncertainty in the sales market has resulted in more lettings activity with tenants taking advantage of their new ability to end fixed-term constraints under the Renters’ Rights Act.

“Rents have held firm, supported by supply shortages, especially of larger flats and family houses, as exiting landlords are not being replaced fast enough so standards are slipping too.”

Tomer Aboody, a founding director of specialist lender MT Finance, said: “With the new prime minister already indicating further and harsher taxes to come for both homeowners and landlords, activity and confidence is more muted.

“Evidently, trying to squeeze every property owner further isn’t the way to encourage the economy or help it flourish.”

He added: “How well the year finishes for the housing market will depend on whether or not Andy Burnham is advised against further punitive taxes in the October Budget.”