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No buffers in sight for those ‘trapped’ on runaway rental train

As a consequence, the upwards rental pressure Rightmove has been reporting since the beginning of 2010 seems to have even more headroom, and this can be seen in Rightmove’s latest findings that 53% of tenants anticipate that their rents will be higher still in 12 months’ time.

Miles Shipside, director of Rightmove comments: “The momentum of the runaway rental train shows little sign of slowing. New tenants are still looking to clamber aboard in their search and are finding a dwindling number of places to rent as existing tenants have limited exit opportunities and stay put. The rental journey is the only real option for many, and the majority seem resigned to having to pay more. It has to run out of steam soon as the failure of wages to keep pace with rising living costs increases the pressure on tenants’ disposable incomes”.

Rightmove’s survey provides an insight into the increasing pressure that the UK’s trapped renters – those who state they would like to buy but simply cannot afford to – are under:

– ‘Trapped renters’ make up the majority of the UK’s rental sector at 55%, with a further 31% in the ‘wait and see’ camp who would like to buy eventually but not just yet.
– Two in five (39%) of tenants expect to be in the rented sector for three years or more. This has increased from almost a third (31%) a year ago, highlighting the growing reality for many tenants that renting will be their long term living solution rather than a short term accommodation fix.
– One in four (27%) of the UK’s ‘trapped renters’ are over the age of 40, raising the prospect of some of this group having to choose between a challenging reduced mortgage term or paying off a mortgage into their 70’s if and when their hopes of homeownership are realised.

Shipside comments: “Over half of those in rented accommodation would like to buy now but can’t make the sums add up and, as a result, are trapped. The global economic woes that have left first time buyer numbers at record lows will shatter the goals and aspirations of many as they face the reality of renting for far longer than they originally planned. Trapped renters over the age of 40 could face the prospect of being an OAP mortgagee, or face difficulty getting a 25-year mortgage term if it takes them beyond lenders’ retirement age criteria.”

The combination of high tenant demand and upward rental pressure will be appealing to long-term investors, leading to a change in investor mind-set:

– 41% now state that attractive yields from rental returns are their main reason for investing in property, up from 24% in Rightmove’s Quarter 1 survey of 2011.
– Only 1 in 5 claiming to be motivated by growth in capital value.
– 39% state that the poor performance of other investment options is their reason for investing in the property ‘asset-class’.

Shipside adds: “Currently the stock market offers the certainty of a stressful rollercoaster ride and safe cash investments deliver the certainty of below inflation returns. Understandably the solidity of bricks and mortar combined with high tenant demand and rising rents has growing appeal as a physical asset that could prove to be a better hedge against inflation”.

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