"The government and private sector are working to rectify the supply issue, but this will take time and there are opportunities for investors in the interim too"
Data from the March Private Rented Sector Report revealed that, on a regional level, the West Midlands had the highest number of new tenants registered per branch with an average of 157. However, this number was lowest in Scotland where there was only an average of 31 new prospective tenants registered in March.
Rent prices
The number of tenants experiencing rent increases jumped in March as 60% of agents saw landlords increasing rent compared to 49% in February. This figure is also up by 20% from 30% in March 2019. The number of tenants successfully negotiating rent reductions fell to 1.7% in March, falling from 2%. This is the lowest number recorded since October last year when the figure also stood at 1.7%.
Supply of rental stock
The number of properties managed per letting agent branch fell from 195 in February to 193 in March. Once again, the West Midlands came out on top with the highest number of properties managed per letting agent branch at 260. However, rental stock was the lowest in London with an average of 128 properties managed per branch.
The number of landlords selling their buy-to-let properties remained the same for the sixth month in a row, at an average of four per branch in March. This figure remained the same in March 2018 and March 2019.
Mark Hayward, Chief Policy Advisor, Propertymark, said: “It’s great to see that the rental market is continuing to boom as demand for rental properties rises. Of course, as demand rises and the number of properties decreases, rent prices will inflate, but we’d encourage letting agents to continue to support landlords and their tenants throughout the ongoing Covid-19 difficulties where possible and ultimately it is positive to see rent flowing and incomes returning for many people.”
The headline price balance came in at +24% in February, unchanged from a downwardly revised figure of +24% in January.
Respondents in most regions reported an increase in prices with the strongest growth in the North West of England and notable improvements in Northern Ireland as well. London and the North East of England remain the exceptions with momentum in the former deteriorating for the fourth consecutive month. In fact, surveyors have now reported a fall rather than a rise in London prices for a full year (with most of this activity concentrated in the inner boroughs).
Having moved into positive territory last September, new buyer enquires seem to have gradually lost steam over the past few months ending February on a flat reading.
At a regional level, momentum remains strongest in the South West and weakest in the East Midlands.
Meanwhile, the deterioration in the supply of new listings reported in January was confirmed once again this month with 14% more respondents reporting a decline in instructions relative to the prior period’s 12%. The pace at which new instructions are dwindling appears to be particularly acute in the North West of England and West Midlands.
With demand flat and the supply of new property continuing to slip, the national agreed sales indicator pointed to another steady month for transactions, posting a reading of +2% (following -2% previously). Sales activity appears to have picked up in London after nearly a year of negative to flat growth. Tight supply conditions across a majority of the regions coupled with stable sales activity has led to a further erosion of available stock for sale, with the average stock per surveyor just shy of a record low. Indeed, respondents across most parts of the UK continue to highlight in their comments the supply shortage to be very dominant feature of the market at present.
The outlook for transactions show signs of measured optimism as near term expectations remain broadly unchanged at +16% (from +15% in January). At the twelve month horizon, respondents across nearly all areas are more confident with a net balance of 37% of contributors forecasting activity to rise. Wales and Northern Ireland report the strongest expected improvements, followed by Scotland and the North West of England.
Price expectations over the next three months were unchanged in February, with 13% more respondents expecting a rise rather than a fall. Both London and the North East of England report near term weakness in prices. At the national level, the outlook improved noticeably over the year to come with a net balance of 63% of surveyors forecasting growth (compared to January reading of +53%).
In the lettings market, tenant demand rose for the third consecutive month as 15% more respondents noted an increase (rather than a fall) on a non-seasonally adjusted basis. Nevertheless growth in demand is more modest than a year ago when 29% more respondents reported an increase. The flow of new landlord instructions, however, reportedly deteriorated, with a net balance of -10% the weakest reading in over two years. This negative trend is likely to persist over at least the next couple of months as changes to mortgage interest tax relief start to take effect in April.
As such, rent expectations remain in firmly positive territory with a net balance of +24% in February. Further out, over the next twelve months, survey respondents forecast rent to rise by a further 2.7%. Moreover, rental growth is anticipated to accelerate to average 4.4% per annum over the next five years.
The London rental market continues to be an exception with surveyors reporting weak tenant demand along with negative near term rental expectations.
Stephen Wasserman, Managing Director of West One Loans, said: “The persistent supply vs. demand challenge plagues the property market, with landlords looking to capitalise on strong demand having to overcome sustained supply-side issues. The changes to buy-to-let taxation are likely encouraging some to put the brakes on their investments but, with many hungry renters, landlords shouldn’t walk away completely. Perseverance is likely to deliver results, and we’ve seen both in the BTL market and the linked bridging finance market a significant switch by professional landlords, to buying through limited companies and other methods to mitigate the tax changes.
The government and private sector are working to rectify the supply issue, but this will take time and there are opportunities for investors in the interim too. Indeed, at the end of last year we saw a significant recovery in the bridging loan market after stutters provoked by the summer’s economic storms. We anticipate this trend will continue as the housing supply is squeezed and investors are ever more likely to need quick and flexible financing options to enable them to move quickly and push deals across the line. The industry has to respond, there are opportunities out there and pace is key.”
