Rent Ceilings Have Been Reached - agency's stark warning

The chief executive of one of Britain’s largest franchise agency chains is warning that rents may no longer be able to rise as tenants have reached the so-called affordability ceiling. 

Winkworth’s chief executive Dominic Agace says in a statement to shareholders: “We have witnessed some price weakening in the rental market with supply increasing (29% ahead of 2023 to end of March 2024) and demand declining (5% behind 2023 to end of March 2024). 

“We believe that affordability ceilings have now been reached and, as financing costs fall from peak levels, some landlords may be tempted back into the market.”

And the same agency’s chairman - veteran agent Simon Agace - comments in the same shareholder statement: “At present, London rentals are performing differently to those in the country market. The London market has become increasingly price sensitive as affordability kicks in, therefore careful pricing in London will now be important for landlords. 

“The country market, meanwhile, is short of stock, as it seems that some Londoners have been prepared to move out to seek lower rentals. 

“We have also seen changes in some areas such as central London where, post Covid, stock has moved back to short term rentals providers, such as Airbnb. This situation may change with increased regulation, with the presumption that eventually much of that stock will either be sold or come back to the longer-term market once rules are tightened up.”

The warning about rent levels comes despite the lettings division of the agency performing well in the year under review to shareholders - contrasting with a poor performance, again, on the sales side.

In 2023 sales revenue accounted for 48% of total revenues, down from 54% a year earlier: total revenues were £9.27m, just below the 2022 figure of £9.31m; however, lettings and property management improved by 5% on the previous year, accounting for 52% of the agency’s revenue.

The company says 2024 has had a stronger start than expected, with sales agreed to the end of March 23% ahead of the same period in 2023, bolstered by mortgage providers reducing rates in anticipation of a rate cutting programme by the Bank of England. 

The statement continues: “We expect housing prices to remain broadly flat this year, with new interest instead feeding through into an increase in transactions which have been held back over the past 18 months.

“We have witnessed some price weakening in the rental market with supply increasing (29% ahead of 2023 to end of March 2024) and demand declining (5% behind 2023 to end of March 2024). We believe that affordability ceilings have now been reached and, as financing costs fall from peak levels, some landlords may be tempted back into the market.

“We have already opened three new offices in 2024 in St Leonard's [Exeter], Leamington Spa and Stoke Newington. With the planned new franchisees in London, and our portfolio management initiatives revitalising ambition and growth right across the business, we are excited by the outlook for the current year.”