UK rents to rise as supply falls short of demand – RICS

UK rents to rise as supply falls short of demand – RICS

0:01 AM, 14th September 2023, About 9 months ago

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The UK’s rental market is facing a shortage of available properties, as tenant demand continues to outweigh landlord instructions, the Royal Institution of Chartered Surveyors (RICS) reveals.

The survey also shows that house prices are on a downward spiral, as the sales market slows down.

According to RICS, tenant demand rose for the third consecutive month in August, with a net balance of +47 of survey respondents noting an increase (compared with +59 in July).

However, new landlord instructions fell slightly with a reading of -20 (-19 in July), indicating that fewer properties are coming onto the market for rent.

This mismatch between demand and supply is expected to drive rent prices higher over the coming three months, with a net balance of +60% of contributors forecasting an increase.

That’s the highest reading for this indicator since 2016.

‘Continuing strength of rental demand’

Simon Rubinsohn, RICS’ chief economist, said: “The other side of the softer demand in the sales market is the continuing strength of rental demand.

“The yawning gap with rental supply is clearly visible in the RICS Rent Expectations indicator which remains close to an all-time high.”

He added: “Anecdotal comments from contributors that landlords are leaving the sector suggests the challenging environment for tenants is unlikely to improve any time soon.”

‘Landlords are still selling up’

Sarah Coles, the head of personal finance at Hargreaves Lansdown, commenting on the RICS survey, said: “Renters continue to have a torrid time of things. Landlords are still selling up, and with a steady stream of new tenants coming to the market, the horrible imbalance of supply and demand continues.

“The Bank of England says the flood of landlords out of the market isn’t as dramatic as some are fearing.”

She added: “However, they agree there has been a gradual fall over the past two years, thanks to everything from tougher tax treatment to tighter legislation.

“There’s every chance that higher mortgages will chase even more of them out of the business.

“As a result, rents are still soaring, and there’s unlikely to be any let-up soon.”

House prices are continuing to fall across the UK

The RICS survey also portrays a gloomy picture for the sales market, with house prices are continuing to fall across the UK – with the RICS index recording the most negative reading since 2009.

Also, respondents say that new buyer enquiries declined slightly in August, with new sale instructions following a similar trend.

And the respondents report a decline in newly agreed sales – it’s now at the weakest reading for this indicator since the pandemic.

The near-term sales expectations remain subdued among members though the index points the sales market improving slightly over the next 12 months.

Feedback points to a sluggish housing market

Mr Rubinsohn said: “The latest round of feedback from RICS members continues to point to a sluggish housing market with little sign of any relief in prospect.

“Buyer enquiries remain under pressure against a backdrop of economic uncertainty and the high cost of mortgage finance.”

He adds: “Meanwhile, prices are continuing to slip albeit that the relatively modest fall to date needs to be seen in the context of the substantial rise recorded during the pandemic period.

“Critically, affordability metrics still remain stretched in many parts of the country.”

‘Higher mortgage rates chased buyers out of the market’

Looking at the RICS survey for the housing market prospects, Ms Coles from Hargreaves Lansdown said: “August is always quiet, but this year it was deathly. Higher mortgage rates chased buyers out of the market, and those who remained sat on their hands in the hope that house prices would keep dropping.

“They’re likely to get what they wish for.”

She added: “Prices are falling, but not fast enough to convince buyers to take the plunge.

“Those who are prepared to make an offer are driving a hard bargain.

“Sluggish sales have a knock-on effect, because it gets more difficult to put a chain together. Even when they succeed, it takes so long that buyers get cold feet about paying a price they offered months ago.”

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