Landlords have been overwhelmed by demand with 13 prospective tenants lining up for every rental property.
Would-be tenants face huge competition as the average number of people registering on letting agents’ books has increased by 88% from 78 to a record high of 147 between February and September, according to the trade body Propertymark.
Estate agents said while the number of tenants house hunting keeps climbing, the number of available properties to rent has flatlined. On average, each branch has reported having just 11 properties available since June this year.
However, Nathan Emerson, of Propertymark, said price rises had been tempered by rising costs elsewhere.
“The number of our agents reporting rent increases is down,” he said. “But the UK-wide reform of this part of the market is continuing to affect the sentiment of landlords.”
Many landlords have sold up in recent years due to unfavourable tax changes and increasing costs.
Buy-to-let investors must also cope with rising mortgage rates, which have risen at pace this year. Nearly two-thirds of all fixed-rate buy-to-let mortgages will expire by the end of 2024, according to the credit rating agency Moody’s, and could face paying rates four percentage points higher than current levels.
While demand has outstripped supply in the rental market, there was evidence that the market for home sales was starting to rebalance, Propertymark found. In September, 52% of estate agents said the majority of sales completed below the asking price. This compares to a low of just 15% in March.
Mr Emerson said: “Sellers will need to be more realistic about the price their home will achieve as the uncertainty of the wider economic landscape begins to cool the previously very hot market.”
Market pundits expect house prices will fall between 8% and 10% over the next year as rising interest rates hit affordability for prospective buyers. The average rate for a two-year mortgage soared past 6% for the first time since 2008 this month.
One in three renters forced into bidding wars
Tenants are being forced to offer more than the asking price on a third of new tenancies across London and the home counties.
Competition is growing in the rental market as landlords sell up, leaving renters to enter bidding wars for the few properties available.
Some 31% of offers accepted in London were over the listing price last month. In September 2021, the figure was 23%, according to Foxtons, an estate agent.
Knight Frank, another estate agent, said it had also seen a rise in price wars in London and the home counties this year.
The proportion of offers accepted over the listing price from July to September was 31.7%, up from 29.7% during the same period last year.
David Mumby, of Knight Frank, said this was driven by a “chronic shortage” of available properties. “There are very limited options for renters, so they’re going into competitive bidding scenarios,” he said.
He said the number of available properties had fallen by about two-thirds since before the pandemic. Many renters are paying 10% to 15% more to renew their tenancies rather than risk even steeper rises elsewhere.
Mr Mumby said demand for rental properties had soared as workers returned to the office and more first-time buyers have been shut out of the property market because of rising mortgage rates.
“It’s a perfect storm of a lack of availability and big demand,” he said. “People are having to pay crazy prices.”
Rental prices in London reached the highest level on record last month, at an average of £553 per week, according to Foxtons.
Chris Norris of the National Residential Landlords Association, a trade body, said buy-to-let landlords have been deserting the London rental market because of rising mortgage rates and a drop in the tax relief available to landlords.
He said the city offered some of the lowest returns for buy-to-let investors because of how expensive it is to buy property. “The numbers just don’t stack up,” he said.
Mr Norris said it was less common for landlords to accept offers over the asking price if they were managing their own portfolios rather than working with letting agents.
“Estate agents do tend to encourage a bit of bidding,” he said. “And they’re often quite quick to go to sealed bids, which can add a bit of inflation to those rents.”
Clive Betts, the Labour chair of the Housing Select Committee, said: “We need to build more homes. This is something the government seems to have now lost sight of. It doesn’t seem to be a target or even an ambition anymore.”
Earlier this month outgoing Prime Minister Liz Truss announced she had effectively dropped the Tories’ manifesto pledge to build 300,000 homes a year.
Tenants Paying Rent Upfront Have BIG Advantage Over Competition
A new assessment of the private rental sector by guarantor service Housing Hand suggests that tenants paying rent upfront have a big advantage over rivals when it comes to securing a property,
Housing Hand says this is leading to an increasingly unequal lettings market with tenants with funds more likely to bag their chosen property.
This is happening just as analysts such as those at the Centre for Economics & Business Research suggest that over 400,000 households in the private rental sector will fall into rent arrears this year – a rise of a third on the arrears total in the early stages of the pandemic.
“At a time when the private rented sector is facing threats to its longevity from multiple directions, it is important that we do all we can to support both landlords and tenants. The private rented sector is a valuable resource that needs careful attention if we are to preserve it. This is why services such as pre-validation checks and rental guarantor services are so important” claims Graham Hayward, Housing Hand’s chief operating officer.
His firm is now working with PropTech player Canopy to support renters who don’t meet traditional referencing requirements.
While renters usually have to earn 2.5 to 3.0 times the annual rent in order to be eligible to rent a home, Housing Hand claims that using its product, they need 1.5 times net earnings to qualify. Housing Hand then serves as the individual’s rent guarantor.
Meanwhile, Housing Hand says it’s also invested in new technology and processes to speed up the pre-validation element of its service.
Housing Hand sales and business development chief James Maguire comments: “There’s no denying just how tough the rental sector feels for both tenants and landlords right now. By providing a bit of reassurance and support for all parties, we hope to remove some of the stress from the rental process, as well as delivering peace of mind for renters and landlords alike.”