All Change - supply growing and rental prices under pressure

A leading agency says there are now clear indications that supply in the lettings market is growing and that rent levels are coming under pressure as a result.

Knight Frank says frustration has grown among tenants over the last 18 months as a scarcity of available properties has resulted in fast-rising rents. And it says the UK experience has been mirrored around the world as offices and universities re-opened and demand surged.

A strong sales market, driven by a stamp duty holiday, low borrowing costs and the ‘escape to the country’ trend led to a sharp rise in the number of sales during the pandemic, exacerbating the supply shortage.

But the agency insists that things are reversing as mortgage rates normalise and the sales market stutters, which means stock is rising and upwards pressure on rents is relenting.

Citing figures from the OnTheMarket portal, Knight Frank insists that the number of new lettings listings in the final two months of last year was 15 per cent higher in England and Wales than the same period in 2021.

“Most of our lettings offices in London are reporting that stock levels are as high as they have been since before the pandemic” says Gary Hall, head of lettings at Knight Frank. 

“The majority of properties have come from owners who would otherwise have sold but based on the uncertainty surrounding prices and transaction volumes, have decided to sit it out.”

There was some variation around the country, with stock levels rising by 36 per cent in the south-west.

“There are a number of properties in the south-west with a lettings unit attached” comments Mark Proctor, head of south-west sales at Knight Frank. “After the recent spike in mortgage rates, more owners need the extra income and are renting them out. Meanwhile, people who want to buy in the south-west are increasingly going into rental accommodation first rather than making a decision quickly, so demand has picked up.”

There was also a discrepancy in the capital between the overall figure for London (where supply is up a token two per cent) and prime central areas (up 37 per cent).

London has a different tenure profile to the rest of the country, with 29 per cent of homes privately rented, compared to 17 per cent in the rest of England, pointing to a higher degree of saturation. The London sales market is also benefitting from a return to more urban living as the pandemic winds down in the UK.

Furthermore, mortgage debt is higher and more prevalent in the capital, meaning owners have less room for manoeuvre when deciding whether to sell or let out their home.

The same cannot be said for prime central London, where there is a higher proportion of cash buyers. 

“It has been one-way traffic from the lettings to the sales market over the last year and a half but that is changing” according to David Mumby, head of prime central London lettings at Knight Frank. “It is more noticeable for higher-value properties because there are fewer forced sellers. There is less leverage, which means owners can wait three or four years to sell and are able to let their property out in the meantime.”

The agency suggests that supply may pick up further after the spring as price expectations are more fully put to the test and more so-called ‘accidental landlords’ are created.

But in a new report it summarises the situation by saying: “Whatever happens, the days of 20 per cent-plus growth in rental values appear to be behind us.”