RICS Forecast - Rent rises set to be slower and lower

The latest rental market survey by the Royal Institution of Chartered Surveyors suggests there’s still a significant mismatch between supply and demand in the private rental sector.

But the survey - which measures the sentiment of RICS member agents - shows two possible signs of market improvement.

Firstly, it says “tenant demand growth appears to have softened of late” with the latest figures (showing demand up according to a net balance of +18% of survey respondents) being considerably more stable than the average of +32% seen over the past 12 months.

Secondly, today’s survey shows a net balance of +33% of contributors expecting rental prices to rise over the coming three months. Although this measure remains indicative of rents remaining on an upward trajectory, the latest figure is the lowest for rental expectations since Q1 2021. 

However, the new landlord instructions returned a net balance reading of -16%, which once again suggests the flow of listings coming onto the rental market is deteriorating. 

On the sales side, new buyer enquiries picked up a little in July, with more buyers looking to buy a home - a result of +2%, up from -6% last month. Whilst still broadly flat, also it is the first time in four months that RICS has seen positive numbers of buyers looking to enter the market.  

The number of agreed sales also saw an improvement. Whilst this month's -2% (net balance) result is still inside negative territory, it continues the positive trajectory since -13% and -6% in May and June, respectively. 

Looking at the sales numbers over the next three months a net balance of +30% of respondents predicts sales rising over the next three months, which is the most positive sentiment since January 2020. The long-term (12 months) is also more optimistic, with +45% (net balance) of respondents expecting sales increases in 12 months, up from +40% (net balance).

Looking ahead, +46% (net balance) of respondents expect prices to be higher in a year's time.

RICS Chief Economist, Simon Rubinsohn, says: “The new government’s focus on boosting housing development alongside the recent quarter point base rate cut does appear to have shifted the mood music in the sales market, with projections for both near and medium activity picking up according to the latest RICS Residential Market Survey. Inevitably, significant challenges lie ahead in delivering on the ambitions around planning reform and it is far from clear that the Bank of England will follow the August move with further easing over the coming months, but, even so, the policy mix is becoming more supportive for the sector.

“However, if there is a bit more hope regarding the sales market, the difficulties in the lettings market remain as intense as ever with little prospect of any relief in sight. Demand is continuing to run ahead of supply with many respondents to the RICS survey noting that landlords are looking to reduce holdings in the face of an increasingly hostile environment for investment in the sector.”