Tenant demand is rising as home supply falls – RICS

Tenant demand continues to rise while the supply of available homes for rent remains is falling, the latest RICS UK Residential Survey reveals.

The survey found tenant demand rose to a net balance of +14%, while landlord instructions remained negative at -17%.

A net balance of +25% of respondents also say they expect rents to rise over the coming months.

That will keep pressure on tenants’ finances at a time when the sales market is also weakening.

House sales are down

The survey also found home buyer demand remained firmly negative, with new buyer enquiries at -34% in April.

That was less severe than the -40% recorded in March but still pointed to weak activity.

Agreed sales were also subdued, with a net balance of -36%, broadly unchanged from -35% in the previous month.

House prices came under heavier downward pressure as the headline house price indicator slipped to -34%, compared with -25% in March.

Buying sentiment is ‘subdued’

The organisation’s head of market research, Tarrant Parsons, said: “April’s results show a housing market still in the grip of macro headwinds stemming from the Middle East conflict.

“Recent warnings from the Bank of England that interest rate rises may be required to tackle renewed inflation, driven by elevated oil prices and disrupted supply chains, underline the challenging environment facing buyers.”

He added: “Until there is a clearer path for inflation and borrowing costs, activity and sentiment look set to remain subdued, particularly across southern England and London where affordability pressures are most acute.”

House prices struggle

House prices in London, the South East, East Anglia and the South West saw stronger downward pressure.

However, the North West and North of England posted marginally positive readings and prices were still rising in Scotland and Northern Ireland.

Near-term house price expectations remained negative at -38%, although this was an improvement on March’s -45% reading.

Industry reaction to the RICS UK Residential Survey

Tom Bill, the head of UK residential research at Knight Frank, said: “The Renters’ Rights Act has reinforced the imbalance between supply and demand in the rental market, which will sustain upwards pressure on rents.

“This is an unintended consequence of the new rules and upwards pressure on rents could intensify by curbing supply further if future green regulations for landlords are introduced without effective consultation.”

He added: “After mortgage costs were pushed higher by the Middle East conflict and associated energy price shock, the prospect of a new government to the left of Keir Starmer brings its own inflationary concerns and has squeezed buyers further.

“Those sitting on mortgage offers that predate the conflict are keen to transact, but downwards pressure on prices will increase as offers lapse in coming months. We expect minimal UK house price growth of 1.5% this year, but that depends on how events in the Middle East and at Westminster play out.”

Jeremy Leaf, a north London estate agent and a former RICS residential chairman, said: “The Renters’ Rights Act has prompted some landlords to sell though not as many as we had feared.

“The resultant shortage is supporting rents which would have probably otherwise dipped bearing in mind continuing tenant affordability concerns.

“Demand has improved a little in the past month or so but the rising cost of living partly due to the war in Iran is frequently mentioned in our offices as a reason not to increase rental offers too far.”