How we see the lettings market in 2023

At its peak in July 2022, average UK annual rental growth across the entire country was running at 12.3%.  This was more than just a post-pandemic recovery: rents both in London and nationally had already returned to pre-lockdown levels in 2021 so what we were seeing were record rent levels nationwide.

There were 26% fewer homes available to rent in Q3 2022 than the pre-pandemic average, according to data from Rightmove. In London the shortfall was even greater at 30%. At the same time, the monthly RICS survey shows that demand from prospective tenants nationally has increased month on month since May 2020.

All indications suggest that today’s high levels of rental value growth will continue across the country as we move through 2023.  There remains a huge imbalance between supply and demand – There are simply more people wanting to rent homes than there are homes available.

What’s to stop this situation persisting forever? On the one hand, will we see rental demand decline?  This is doubtful given the rising cost of mortgage debt and limited supply of affordable housing.  On the other hand could we see an increase in rental supply?  Will landlords wish to return to the market?

While we expect sale transactions to slow in the coming months, and maybe even years, many of the factors driving home moves will still continue as normal. Couples will continue to move in together. Workers will continue to take up new jobs across the country and sadly, but inevitably, the estate agent’s friends of death, debt, and divorce will continue to force people to move.

The owners of these properties will therefore face a choice. They can choose to sell into an uncertain, illiquid market. Or they can hang back, rent the property out for a few years, and wait for things to look a bit clearer. These accidental landlords will increase the supply of homes to rent, helping to ease the imbalance between demand and supply and stabilising rental growth at more sustainable levels.

Furthermore we anticipate demand from deliberate investor landlords to remain strong.  Investors, particularly those with cash to hand or that have registered as limited companies, will take advantage of price adjustments to secure stock with less competition from mortgaged owner occupiers. Institutional investor demand for purpose-built homes for rent should also remain strong, with returns still looking resilient compared to other asset classes. 

All this suggests that whilst rental supply may increase, rental demand will remain strong amidst this uncertain economic world.