Unfortunately, we don’t have a crystal ball of what is going to happen but we can give an indication of what most professionals believe.
Will rents keep rising at the rate that they are now? Will more homes become available for renters next year?
Zoopla states that rental growth is likely to start to slow from 12% in 2022 down to 5% in 2023.
They also confirm that single renters are currently spending 35% of their income on rent. If rental inflation continues at the rate it is now, this could increase to 37% in 2023. Zoopla thinks this is unlikely.
There is a limit to how much renters can afford to pay and it is likely to have an impact on demand. To include a pace in which rents can increase next year.
We understand from Zoopla that rents have risen 12.1 in the last year. Around £117 a month or £1400 a year. That is in on the general across the market rate.
This is way above what wages have increased over the past 12 months. The rental affordability is going to start to have tenants question at some point how much they can actually pay. Most renters have at least 35% of their income going on rent. However, with the cost of living increasing this could change.
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New lettings account for over a quarter of the rental market and one in four renters move home each year. The rest have a tendency to stay put. The office of national statistics have confirmed that rents have risen by an average of 3.8% for people who are staying where they are. This is because most tenants are happy to stay where they currently are rather than look to move. This is mainly because there is so little on the market and what they could move to could can be more than what they are offered on their current property. The actual current supply is a lot less then what is available however this can depend on the area.
What is the opinion regarding rentals? Are they going to get cheaper?
It is unlikely this is the case Zoopla say. Demand is still up 40% and supply is down 38% so prices have been pushed up quite far. The demand is fair exuberated by mortgage rates rising meaning a lot of first time buyers who normally continue to rent will not be coming out the market. In fact, we understand that a lot of existing owners have decided to come out the market and rent which is causing even more pressure.
However, there is a limit in which tenants can afford by way of rents so there could be a correction over the year. If rental growth were to continue to run at 12% over 2023 then this would be a disaster for a lot of renters. It is unlikely that it is going to increase to the extent it has but Zoopla still anticipates that the rental price will increase by at least 5%.
Is there anything that could reduce the rental income and make renting less expensive?
The only way that Zoopla believe the rental prices will come down is increasing investment in new rental supply and stock. Unfortunately, none of this seems to be taking place over the next 12 months. The private renters sector has a structural supply problem stemming from the economic and policy factors. The stocks at homes available for rent has not grown since 2016 holding steady at 5.5 million homes. In fact over the last 7 years private landlords have been seen to be selling up. Taking advantage of strong sales market in face of higher taxes and regulations.
The reduction in private available rented homes has been offset by some corporate investors delivering build to rent schemes but we do see starting to come down.
The only way to bring prices down is to increase in more investment.
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Will rental supply start to improve for renters?
There may be a very small improvement in rental supply over the coming months. But, it will be very area dependant. With the sales marketing starting to become weaker landlords who are looking to sell homes may have to continue to rent them out while the market tries to recover. The increase in rental supply will not give a material slow down to rental inflation on its own. Increasing demand is pushing up higher rents and adding to affordability pressures for tenants.
Are more renters likely to share homes to spread the costs?
Recent research from resolution foundation two, found it has been a steady increase in sharing. You may find that where student properties were taken in certain areas professionals may now look to share as it is probably cheaper in the long term.
We also anticipate the more renters are likely to continue living with their parents. The office of national statistics data shows continue increase in a number of young adults between 20-34 are staying at home.
Will more renters start trading down to smaller homes?
With the cost of living increasing smaller homes such as one and two bedroom flats may find an increase for demand. This will mean there will be a reduction for houses. It is all down to affordability for tenants.
What is the overall outlook for renting in 2023?
There are proposed new regulations for the rental market this such as the renters reform bill. Please click here for our article on it.
There are new rules on energy performance certificates being a C or above from 2025. Likely to result in more landlords starting to sell up. However, this could be changed by an election.
Loss of private rented homes is likely to be offset by a new investment on a build to rent sector. But it wont always replace it in its entirety.
Zoopla believes the demand for rented homes is only going to rise in a medium term.
It is always difficult to know exactly what is going to happen over the next 12 months and whether the Government will make more changes for landlords and make it more difficult. However, regulation is coming in for the lettings market again and landlords need to be aware of it. Why not let us give you a quote and see if you can reduce your cost on your insurance. Please contact us on 01273 827090 or firstname.lastname@example.org.