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Fewer homes means no ‘let-up’ in rising rents

The return of more landlords to buy more property to rent is sorely needed to satisfy the growing housing crisis for those unable to get a mortgage to buy, and also unable to find a home to rent.

Miles Shipside, director of Rightmove comments:

“For the second consecutive quarter more than 40% of renters are revealing their fears of another upwards movement in rents. They are at the sharp end of competitive demand from other renters, experiencing a struggle to find suitable rental
accommodation and losing out on properties to higher bidders. Rental agents are reporting turning many prospective tenants away, with only those with the best references passing the beauty parade to get to view the limited new stock on offer.”

Rightmove’s Quarterly Consumer Confidence Survey first started to track a rising expectation of rent rises 18 months ago in April 2009. Letting agents have been reporting higher rents being achieved upon both tenancy renewals and for new tenant lets. Cases of gazumping are occurring where demand significantly exceeds supply. In spite of over a year of upwards rental pressure, 42% of renters feel that rents will be higher still in another 12 months. While this is slightly down on the 45% forecasting higher rents in our previous survey, 42% expecting further rises provides evidence there are still more rises to come, despite rents having already increased substantially in many locations. The proportion of those expecting rents to be lower in 12 months’ time now stands at just 7%. The upwards price pressure on rents is highlighted by that fact that the stock of available rental properties advertised on the Rightmove website is 23% down year-on-year.

Shipside comments:

“The momentum for further rises continues, even though some agents are reporting increases of 5% to 10% in the last year already. This is tough news for tenants who have already experienced rent rises prior to this latest report. It looks like there is no let-up in demand from fellow renters. This means another rise upon renewal with your existing landlord or an even
larger jump if you enter the open rented market to get one of the increasingly scarce new let opportunities.”

Those would-be buyers who have been ‘trapped’ in rented accommodation because they would like to buy but cannot afford to remain in the majority, with some 55% stating this frustration. The figures do indicate a slight easing in their plight as the number is down from 57% in the previous quarter.

Shipside adds: “The restrictions on ’trapped renters’ remain, with their buying aspirations constrained by the barriers to entry of high deposits and a maze of credit score criteria. There is a shift of two percentage points indicating that the depressed sales market may be giving some renters the opportunity to manage their escape from the rented camp. Over the past year a number of renters may have been able to build up deposits which, combined with the recent fall in house
prices, could mean home ownership may be starting to come within reach for some.”

‘Institutionalised renters’ seem here to stay with nearly 1 in 3 resigned to remaining in rented accommodation for three years or more. That the combination of longer-term tenancy and improving rental returns provides a more stable and low risk investment should, in theory, increase the number of properties in the rented sector. However, the influx will remain restricted to those investor landlords who have high levels of access to cash to lessen their reliance on hard to obtain mortgage funding. The magnet of ever increasing rents and more negotiable sellers should attract more buy-to-let landlords as return on investment pushes potential rental yields beyond 6%, outstripping the attractiveness of other asset classes.

Shipside adds: “Higher returns are great for existing landlords and those with more cash to invest in more buy to lets. This group will keep the fun of better returns to themselves however, until lenders become more flush with their cash and less suspicious of their former darlings who they were so desperate to date until only a couple of years ago”.

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