What Is Fueling The Out Of Control Rental Market

Rents have been well publicized as being out of control. According to the ONS, as you can see here the market has been on an almost two year increase and has shown no real signs of slowing down. Yes, there has been a level but the demand is still far outweighing the demand when it comes to the private rental sector.

Why is that though? As always, it’s a mix of different moving parts that have lead us to this destination that some letting agents have called a whirlwind. With waiting lists to rent property and properties having queues to view, let’s take a look at what exactly has caused this market and how potential landlords could look at this as an opportunity to get into the business where current landlords are exiting.

High Mortgage Rates Sifting Through

One of the main factors that we are seeing that is driving this rental increase is the increase in mortgage rates. Ever since the credit crunch in 2007 / 2008 we have seen rates at all time lows for a prolonged period of time. This gave landlords and homeowners a great platform to access cheap borrowing. Then COVID hit and started the inflation train that we are living through now. Rates went even lower than expected and all of this cheap money flooding into financial systems worldwide saw everyone go on relative spending sprees to keep economies afloat.

When you then couple this with the war in Ukraine, unrest in the middle east and supply chain issues worldwide, inflation reared it’s head in 2021. It ran rampant and the response from world banks was to raise interest rates to try and reign it in. 2022 was the year of the rate increase, with the Bank of England raising rates for a record 13 consecutive months to try and tame it. Whilst, at the time of writing, it is currently working, it has really change the landscape for borrowers. A lot of borrowers are coming off fixed rates of 1%-2% to rates of 5%-6% and seeing their mortgages double, triple and even in some cases quadruple. Which is the sort of financial shock that no one can really prepare for.

Every month that goes by, more and more people are coming off low fixed rates and onto new higher ones. This squeezes people’s budgets and stops them spending, hopefully bringing down inflation. But what it means for landlords is that margins are squeezed and sometimes even eliminated. The only way around this is either to exit or raise rents to still make it profitable. Letting out a property is a business at the end of the day.

Landlords Exiting The Business And Increased Red Tape

With all of that in mind above, it is no wonder landlords are selling up their properties. The rate rises alone have seen margins squeezed and some landlords solely think that’s enough to get out of the business. On top of this, tax relief was cut in previous conservative budget’s by George Osborne (otherwise known as section 24), leaving less in the pie for landlords. Although this is historic, it plays into the picture of a multitude of negatives over the last several years that have left some landlords saying enough is enough and leaving the industry altogether.

On top of this the never ending march of legislation has left some landlords fed up. The march of EPC changes and everything else, there is more now to keep up with than there ever has been before. All of this mixed in with margins being crippled by interest rates have left landlords exiting the industry in their droves. Which has crippled the supply of private rental properties whilst the demand remains high. Contributing tot his whirlwind of rental increases that we are currently seeing.

Affordable Housing Waiting Lists

Another key factor to consider is the waiting lists and demand for affordable housing, which is currently more in demand than it ever has been. The government uses properties it owns to provide housing and accommodation at more affordable rates. Whilst this list is delayed, you can see here that the statistics are rising again in the most recent year. On top of this the government is typically not building any more social housing whilst councils are also selling off some of their stock. Both of these combined with a bigger wealth gap mean that there are more people than ever needing these homes without the money to pay for them. If they can’t get housing, the only other place to turn is the private rental sector.

The Opportunity For Landlords

There is a big opportunity here for potential landlords to secure good returns. In terms of sales, the property market is still relatively stable. Because of landlords selling off and other market demands such as decreasing property prices due to higher rates, this is generally seen as a buyers market rather than a sellers one. Due to this, there are many good opportunities out there for good yielding properties.

With the pitfalls above though, good advice is required. Especially when it comes to securing the right buy to let mortgage that can secure great returns for your property. Get in touch with us today to start your journey or re-look at your current portfolio.

Regulatory Statements

Equity Release

Equity Release plans are not right for everyone. And it is important that you fully consider your options and receive independent financial advice before making a decision. It is also important that, if you do decide to use an equity release product, you choose one that meets your needs.

Remember that taking an equity release plan is generally a long term option. However, there are flexible plans available that may fit your varying needs and some will allow you to repay in the future without penalties.

Buy to Let Mortgages

Some Buy to Let Mortgages are not regulated by the FCA.




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Ashley Hollom
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