A month can be a long time in property and since our last blog post in September, we have seen some unprecedented events that have had a direct impact on the residential property market. Today’s newsletter will delve into the goings on of late and where this leaves Landlords who are trying to decide between selling and renting their investment properties.
As detailed in last month’s post, we have already seen a number of Landlords sell up in the last couple of years with some taking advantage of the Stamp Duty holiday of 2021 and the increased house prices, while some self-managed Landlords decided that with the increase of legislation it was too time consuming an investment.
Movements in the sales market will always have a direct impact on the rental market but the two are not always in line – a strong sales market does not always correlate with a buoyant rental market and vice versa.
With Zoopla’s latest UK House Price Index Report being released today, it is the perfect time for us to compare the status of the sales and rental markets, while also casting an eye ahead to see what may be to come. Hopefully this will help any of our clients who have been mulling over the question; “should I let or should I sell now?”
Sales Market Analysis
The economic and political uncertainty over recent weeks has resulted in a huge jump in average mortgage rates to 6% with ongoing doubt over the outlook for the UK economy. The status of the housing market is directly linked to the health of the economy and of course the cost of borrowing, as the majority of buyers will rely on a mortgage to fund the purchase of their home or investment property.
New buyer demand fell by a third since the “mini budget” with the biggest sudden spike in mortgage rates since the 1980s. The demographic of buyers has shifted more towards those with 100% cash or those who have secured cheap loans, before rates rose, although the rate of offers is down 25% on this time last year.
House price growth has started to slow across the country and it is expected to continue to reduce into Q1 of 2023. Approximately 7% of properties for sale have seen the asking price reduced by >5% – a increase on recent months and an indication that the inflated asking prices of recent times are adjusting to a more settled level.
That said, the appetite to move is still there and the general lack of stock will prevent prices from dropping too dramatically. It is the higher borrowing rates that will price out some from the current market and mean that the pool of buyers will become more limited. Some prospective buyers may decide now to sit tight, see how things play out in the next year and wait for more certainty in the market.
Rental Market Analysis
Our report into the lack of stock in the rental market last month detailed part of the reason behind the increase in prices across the board. This has only been exacerbated in the last month and we are now seeing other factors coming into play that are impacting the availability of rental property, the demand from tenants and the rental price levels.
As previously mentioned, the fluctuations in the sales market will always have some sort of impact on the rental market, which has been evident in recent activity.
With people being priced out of purchasing property, many of those who were looking to make the leap from renting to owning are now finding themselves needing to continue on in rental accommodation.
This is a double-edged sword as it no only increases the demand of people looking for rental property but also reduces the amount of new property coming to the market if tenants are continuing their tenancy or renewing, rather than vacating to move into a home they were hoping to purchase.
Rents have risen considerably year on year, as the effects on the rental market of the pandemic fade and the impact of the low supply, high demand market comes to fruition. Some experts believe that a continuation in rental price growth is unsustainable, but it is difficult to see where the new rental stock is coming from.
Generally, we aren’t seeing Landlords purchasing investment property at the moment, with sales prices still inflated and the cost of borrowing up, which impacts yields.
More people than every are renewing their tenancies to avoid much bigger rental increases by trying to compete with other tenants in the rental market.
As mentioned above, a portion of Landlords have sold up their investments as well which have, for the most part, been purchased by end-users rather than other Landlords adding to their portfolios.
All these factors combine to create an outlook of a strong rental market for Landlords continuing into 2023. This is an ideal time for property owners with apartments and houses that they may be struggling to sell, to switch to renting for a year or so, reap the benefits of the current situation and revisit selling once the market stabilises in future.
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Please don’t hesitate to contact us if you’re considering renting out your property to find out if it you can take advantage of our specialist, in-house Japanese Corporate Desk.