Rental prices rose 3.8% in the year to October
Data from the Office for National Statistics (ONS) recently revealed that private rent paid by tenants in the UK rose by 3.8% in the year to October.
“There has been a lot of upwards pressure on rents since rates started rising in 2022, so an increase of 3.8% in 10 months is only surprising in that it is not higher,” said Nick Morrey (pictured), technical director at Coreco.
Read more: Rents continue to rise – ONS
That said, he outlined that many tenancy agreements are yet to come to the end of their 12 months or two years, at which point he is expecting significant increases as landlords face mortgage payments that might have doubled or even trebled by then.
Increasing rental prices
“These increases will almost certainly continue throughout 2023 and into 2024 as the base rate is expected to top out around 4%, meaning most buy-to-let mortgage products will be higher than that, although possibly a bit lower than they are currently,” he added.
Morrey outlined that this reduction from current rates would be a welcome bit of relief, but noted it is only coming about as a result of markets calming down after the shockwaves brought about by the now defunct Liz Truss and Kwasi Kwarteng fiscal announcements.
At that stage, he noted, there was an expectation of the base rate going above 5%. “Thankfully for many this almost seems like a bad dream, albeit one that cost the Bank of England a considerable sum in gilt purchases,” Morrey said.
The net result of all this, he detailed, is that landlords will be doing everything they can to recoup their ‘losses’ and collect as much rent as they can so that revenue gets as close to costs as possible.
However, Morrey outlined that in many cases this will not be possible in the immediate to short term, a fact, he believed, that landlords and lenders need to come to terms with.
Plight of renters
As for the plight of renters, Morrey said that there is little financial support on offer for them as it stands.
“In the past many landlords were making enough profit on their property, as interest rates were so low, they could afford to allow good tenants some grace when faced with difficult times, but now those landlords are likely to be unable to assist themselves with things like payment holidays or restructured payment schemes,” he said.
As such, Morrey believed landlords with tenants who cannot meet the monthly rent are likely going to seek new tenants who can pay regularly quite quickly for the foreseeable future.
“The government is in a very cash strapped situation - therefore not really in a position to fund any kind of rent payment holiday scheme beyond Housing Benefits, and you have to be unemployed in order to claim in most circumstances not ‘just a little short for a while’,” he added.
He believes there may be some help from charities, but noted this is unlikely to be widespread or to a high level.
Landlords withdrawing from the market
He added that keeping renters in homes and making sure landlords do get paid is important, but he noted that supporting landlords is often politically tricky.
“Ordinary homeowners may feel unjustly treated if tenants get to live in a property with government support, but they get no support with their own increased mortgage costs,” he said.
As a result of all these factors, as well as the general cost-of-living situation, Morrey believes it is possible that there will be quite a few landlords who decide to withdraw from the rental market and sell some, or all, of their properties.
“This will put even more pressure on rents if the rental stock in the UK reduces, especially if first-time buyers decide not to buy and carry on renting while they wait to see if prices fall,” he added.
Impact of proposed EPC requirements
In addition, Morrey noted that the proposed Energy Performance Certificate (EPC) requirement deadlines for rental properties is also fast approaching, although he said these are not in law yet.
“Assuming they do come in, then many rental properties could get sold as landlords struggle to find the cash to put into place the energy efficiency improvements needed to qualify for new tenancy agreements and then renewed agreements,” he added.
As such, Morrey believes this could be the ‘final straw’ for some landlords who then sell up over the next 12 months when current tenancy agreements end.
“If the requirements do not make it into law, then this may give a reprieve to some landlords whose properties are not in an energy efficient state, but it would leave many feeling the UK is not doing what it should in yet another area for global warming, especially with energy prices at their current levels,” he concluded.