"Rising rents have long been associated with climbing rates of homelessness. Research demonstrates that the homeless population climbs faster when rent affordability – the share of income people spend on rent – crosses certain thresholds"
- Ben Howarth - Howarth Housing Group
With more UK interest rate rises on the horizon in 2024 due to a persistently high inflation rate, housing experts are predicting the housing market could crash next year.
Interest rate rises will inevitably lead to higher mortgage rates, which will have a negative effect on the whole housing market. Recent data analysis released by Moneyfacts has shown that the average interest rate on a fixed rate buy to let mortgage deal has fallen slightly to 6.35%.
Although this may be a slight improvement, this rate is still much higher than it was a year ago in what is currently a highly erratic and unstable housing market.
The cost of high interest rates
When mortgage rates rise and remain at relatively high levels, it gets more expensive to buy a property, which reduces demand, and as a result, the housing market slows down. Many prospective buyers will be priced out as high mortgage rates make it unaffordable for some to purchase a new home. At the same time, new home construction will decrease as builders become wary of falling demand.
If people can’t buy, they continue to rent, which puts pressure on an already highly competitive rental market. Crucially for the less financially fortunate - rent prices have continued to increase in the PRS, and if mortgage payments increase for buy-to-let landlords, rent increases inevitably follow.
Social Housing landlords are not so exposed to these market factors. However, it’s notable that the supply of social housing has diminished to such an extent that it has been overtaken by the private rental sector.
And even social housing landlords are likely to increase rents due to inflation. The National Residential Landlords Association said higher interest rates and further increases expected down the line “is likely to leave landlords with little choice but to pass on at least some of the costs”.
Higher rents cause more homelessness
Rising rents have long been associated with climbing rates of homelessness. Research demonstrates that the homeless population climbs faster when rent affordability – the share of income people spend on rent – crosses certain thresholds.
Some landlords may even be forced to remove their rental properties from the market, further reducing the supply of housing. This is because the cost of servicing a single buy-to-let mortgage will likely increase by hundreds of pounds per year.
Many investors turned to property when interest rates were at their lowest, seeking higher returns from the rental market. As mortgage rates rise, however, the increasing returns now available in savings accounts pose a challenge to this thinking. Many small-scale landlords will decide to leave the sector, further reducing the supply of rental homes and thus increasing the prices through simple supply-demand economics.
Levels of homelessness can only rise
The overall impact will be higher rents, fewer properties available to rent and the impracticality of purchasing buy-to-let properties. Added to this will be a potential rise in the actual number of homeless people, as another consequence of a mortgage rise will be that households on lower incomes will be unable to make repayments. This may even result in repossession of their properties.
And of course, as rents also rise, so do evictions, as a growing number of people will struggle to pay their bills, particularly with the ongoing cost of living crisis.
The chances of charitable organisations being able to provide adequate shelter for the homeless will inevitably be compromised. The cost-of-living crisis has already led to a spike in the number of people seeking emergency, temporary and supported accommodation. If organisations are struggling to meet demand now, homelessness can only increase.
These predictions are, of course, only projections, but the repercussions of a house-price implosion, combined with increasing rent and mortgage payments, will be severe. The worst consequence will be the impact on the ever-growing number of homeless people in the UK, with nowhere to turn for help.
