There is no evidence of an “exodus” of landlords, as the UK rental market outlook continues to indicate growth amid high tenant demand.
The number of tenants seeking homes continues to vastly outweigh the number of properties available. At the moment, there are an average of 15 tenants per rental property, according to Zoopla’s latest UK Rental Market report, which is more than double pre-pandemic levels.
This is despite a recent rebalancing within the sector, as the level of tenant demand has fallen in recent months while supply levels have improved slightly. It means buy-to-let landlords continue to experience huge appetite from tenants for their properties – particularly if they are in popular locations.
Zoopla’s report also notes that its data shows there has not been an exodus of landlords in the UK rental market. Looking specifically at private landlords, it found that there was a steady flow of homes for sale that were previously rented – around 31,000 per quarter – which has remained generally level for the past four years.
Of these homes, around two fifths are bought as a rental property by another landlord, while just over half return to homeownership.
UK rental market outlook
In terms of what the future holds for the UK rental market, Zoopla believes current trends indicate there will be no drastic changes, with the supply-demand imbalance “unlikely to improve” materially over the coming 12 months.
It would take a boost in new investment in the private rented sector to boost supply enough to support the number of tenants seeking homes – but as renting becomes increasingly common, particularly since mortgage rates have risen, there would need to be a significant increase in supply to meet this need.
According to Zoopla, this means rents are likely to continue to increase, albeit at a slower rate than we have seen over the past few years.
Mortgage vs cash purchases
Tax changes within the sector that were phased in from 2016, meaning that landlords could no longer claim the income tax relief on their mortgage interest payments, has certainly had an impact on the sector, notes Zoopla. It will be interesting to see how this continues to play out after the general election, with all eyes on the incoming leader to come up with a housing plan.
This is backed up by mortgage data, says Zoopla, which shows the number of buy-to-let mortgages experienced “rapid growth until 2016, followed by much lower levels of new investment until 2022, when the stock of buy-to-let mortgages started to decline as interest rates increased”.
However, it is important to note that research elsewhere has reported an increase in the number of cash buyers and investors, which would not show up in the above research. Landlords who made large capital gains from historic investments, for example, have been able to reinvest this as cash purchases.
There has also been a rise in the number of corporate landlords entering the market in recent years, notes Zoopla. Many of these have a primary focus on the growing build-to-rent sector – a niche segment of the UK rental market that caters purely for tenants and offers additional amenities to a traditional buy-to-let.
The political outlook
Now that the major political parties’ election campaigns are well underway before the public goes to the polls on 4th July, housing is likely to be a hot topic – including the UK rental market.
Zoopla notes that the UK rental market can expect to see a slowdown in rental inflation to 5% in 2024, which may be welcome news to tenants after recent acceleration.
“Recent levels of rental growth have been unsustainable meaning a slowdown is inevitable,” says the report. “This is being driven more by changes in demand than any expansion in supply.
“On the policy front, while the Renters Reform Bill failed to make it onto the statute books, it seems likely that rental reform will return in the next parliament whichever party forms the next Government. While changing the protections for existing renters is important, the greatest imperative is to boost the stock of homes for rent – both
private and affordable through greater housing delivery.
“Only by boosting supply can we improve choice for renters and increase the chances that consumer demand will start to exert more influence over landlord decisions and the quality of rented homes.
“While there has been more political focus on the challenges facing the private rented sector, true progress will only be demonstrated by political parties setting out specific plans and goals for the future of the private rented sector in manifestos.”
Zoopla concludes that a healthy UK rental market is “vital for economic growth and a more balanced housing market”.
