Majority of landlords saw demand rise over the last 12 months

Posted on Wednesday, February 15, 2023

Turbulence in the UK property market has meant that many prospective homeowners have chosen to delay their first step onto the property ladder, holding out until stability returns to the market and subsequently driving up demand for rental properties. 

Following a chaotic end to the year for the UK property market, new research from specialist property finance broker, Finbri, revealed that 75.92% of renters don't think they'll be able to own a property in 2023. Demand continues to outpace supply by a wide margin, with 62.24% of landlords experiencing increased demand for their rental properties in the last 12 months, says a new 2023 landlord report.

Stephen Clark, from Finbri, adds: "Due to the continued instability of the mortgage market and the UK economy, rental property demand is rising. Due to prolonged uncertainty, first-time buyers are postponing entry into the market.”

The rental market is also experiencing a tumultuous time. Following a survey of over 1,000 UK renters, it was discovered that when securing a rental property, 48.45% had experienced increased rental prices, high deposits, and a lack of rental properties available in their desired location.

The situation is expected to become more precarious for renters as demand increases, so too is the UK base rate, and it's expected to reach a high of 4.5% in 2023. To cover the additional expenses, 52.75% of landlords stated they intend to raise rents.

How is the lack of rental stock affecting renters?

The UK is experiencing a shortage of rental stock, with landlords unable to meet the increased demand, leaving renters struggling to find a suitable property.

After surveying over 1,000 UK renters, it was discovered that renters have experienced the following:

48.45% experienced increased rental prices
37.06% high deposits
35.86% experienced a lack of properties available in the desired location
18.08% experienced competition over the asking price
11.49% were unable to secure a viewing

The situation is particularly dire in London and other cities, where rents have risen significantly due to high levels of competition for rental properties. Finbri's survey found that of those who lived in London, 54.7% experienced increased rental prices when sourcing a rental property. Additionally, 73.48% of renters in London are Concerned (30.39%) or Extremely concerned (43.09%) about rent increases.

Are rental prices expected to increase in 2023?

As a result of increasing demand with a lack of available rental stock, the average rent increase over the past 12 months in 2022 was 12.1% and typically accounts for 35% of a renter's income, according to Zoopla.

With the UK base rate expected to increase further and reach a high of 4.5% in mid-2023, and as a result the likelihood of increased mortgage payments, 52.75% of landlords will raise rents to cover additional expenses.

Are investors looking to capitalise on increased rental demand?

What factors must investors take into account if they want to profit from the rising demand for rental properties?

Capital appreciation: With the expectation that property values will fall by at least 5% in 2023 and the rising number of foreclosures and complex mortgage applications for many homeowners, an increase in the number of properties on the market will offer excellent opportunities for investors to diversify their property holdings.

Affordability crisis: As household budgets become more constrained and costs for food, fuel, and housing rise, fewer individuals can afford to buy homes. The state of the UK economy is making it challenging to save money and adding to the pressure on household budgets. Despite 83.82% of renters wanting to own property, 75.92% don't think they'll own in 2023, with 53.82% stating they are unable to save enough for a deposit - most likely due to the increased costs.

Despite the number of opportunities presented to investors, they may find it challenging to obtain traditional financing due to tighter lending criteria, forcing them instead to seek alternative finance solutions such as bridging or development finance.

Base rate: In December, the Bank of England announced a 0.5% increase in its base rate, from 3% to 3.5%. With the base rate expected to increase to 4.5% in 2023, 44.66% of landlords expect to sell investment property/properties, and 45.35% to consider alternative investments.

Potential recession: A potential recession could cause a significant reduction in the number of people investing in property, both as a source of income and as an investment. This could lead to reduced demand for rental properties, placing pressure on landlords' cash flows and reducing the long-term value of their investments.

Shortage of investment properties: Despite growing opportunities to invest in rental property, 53.85% of investors stated they had trouble sourcing investment properties.

Final thoughts

Despite the number of challenges faced by investors, 45% are still looking to invest in 2023 according to Finbri's survey, rental prices are expected to continue rising, with an increase of 4.2% in the private rental market, and investors need to consider the long-term implications of their investments by factoring in potential changes in the UK economy, tighter lending criteria and a shortage of available investment properties.

Via @PropertyReporter