Two-fifths (44%) of landlords are worried about tenants being unable to pay rent as we head into the new year, highlighting how fragile affordability has become, research from mortgage lender Molo has revealed.
Manchester investors are most concerned, as 59% in the city voted that within their top five worries for 2024.
Mark Michaelides, VP of strategy at Molo, said “rising costs can be stressful for both tenants and landlords, but there are ways to effectively handle late payments without resorting to extreme measures, such as eviction or court proceedings. In a recent study, we found that over half (54%) of UK landlords have set up payment plans to help tenants with late payments. It’s important to have honest conversations with your tenants, and if needed, work with them to come up with a solution that is best for both of you.”
Nearly half (47%) of landlords surveyed said that mortgage rates going up is one of their top five worries for 2024.
Their third biggest worry is buy-to-let income tax rates and reduction of capital gains tax allowances (36%).
Michaelides added “the seemingly ever-changing tax landscape can feel difficult to navigate. With the recent changes, many landlords have seen their profits impacted. Making sure you’re claiming all deductible expenses can be a way to help reduce costs. For example, agent fees and costs involved with repairs to the property can be deducted from your overall rental income.”
Demand easing as rental market edges back to normality
The UK rental market is experiencing a gradual easing in demand, marking a shift from the peak levels witnessed in recent years, according to Fine & Country. However despite the easing, demand still remains 32% above the five-year average, with continued competition in the market expected to support rental growth in 2024.
Nicky Stevenson, F&C’s managing director, says that "in October of last year, UK rental growth reached 9.7%. This growth, although still significant, is slightly slower compared to the 11.9% seen during the same period in 2022. Rental demand has decreased by 11% from the unprecedented levels of the previous year but continues to outpace historical averages.”
According to Rightmove, there are signs of improvement in the supply-demand imbalance, with demand easing and available supply up 14% compared to 2022. However, the market remains highly competitive, with the number of enquiries for each property more than tripling from eight in 2019 to 25 presently.
Stevenson comments on the current dynamics in the rental market "the market is gradually evolving, and while demand is easing, competition remains fierce. Renters are having to adapt their strategies, being more flexible with schedules and preferences, and being prepared to swiftly undergo referencing to enhance their chances of securing a property in this competitive landscape. While rents are forecast to continue to rise steadily, we are past the peak growth, with evidence indicating a cooling in tenant demand in the face of weakening affordability. Although slowing, rental growth is forecast to average 3.6% over the next five years. London is anticipated to lead this slowdown, with rents predicted to rise by just 2.0% next year in the capital."
Increasing regulation and higher mortgage rates will continue to impact new investment in the rental market, maintaining the continued supply demand imbalance and keeping the slowdown in rental growth in check. In the prime market, average rents have reached £3,852, reflecting a 5.6% year-on-year increase. Rental growth in the prime markets is above 2.0% in all regions, with South West leading the pack with 19% year-on-year growth.
Annual rent rise in England still near double digits
The latest rental index from Goodlord shows average rents in England rose nearly 9% higher across 2023. In 2022, rents averaged £1,086 per calendar month. In 2023, annual averages were £1,182 - an uplift of 8.8%.
Rents dipped late in the year but the highest rents of 2023 were recorded between July and September when the average topped £1,300 for the first time. London was the most expensive location with rents hitting £2,275 per property during September - a 10.0% annual hike.
Across 2023 as a whole, the North East recorded the cheapest average rents (£874) with Greater London seeing the highest rents (£1,974 on average across 2023). Voids held steady year-on-year, with the average void period in December 2023 coming in at 20 days - matching December 2022’s average exactly.
Goodlord spokesperson Oli Sherlock comments “It’s been a rollercoaster year for the market, with rents ending the year significantly up compared to 2022 figures. We’ve seen first-hand the unprecedented levels of demand for rental properties, as a growing tenant population has come face-to-face with the entrenched supply and demand issues facing our housing market. The lettings industry has striven to keep pace with this demand, as evidenced by some of the historically low void periods we’ve seen throughout 2023. Many agents will have been catching their breath over December, but it’s looking like 2024 will be another year of high rents, escalating demand, and ongoing regulatory changes which will keep the whole market on its toes.”