Dhunya De Silva embarked on her third attempt to move to London with the hopes of a different outcome. After she and her boyfriend received promotions at work, they believed they could finally afford to rent a place in the capital. However, her previous attempts to move had been thwarted by the high costs and unattractive housing options in London.
Despite the increase in income from her promotion, the third search for a rental property has proved to be an arduous process. The competition among tenants is fierce, with dozens of individuals vying for each listing. De Silva finds herself constantly refreshing property search websites, desperate to be the first to view a flat and engage in a bidding war. The situation has become overwhelming and unsustainable.
While rising interest rates have caused the housing sales market to slow down, the rental market remains hot. New let properties are now 25% more expensive compared to pre-pandemic levels in 2020, and the rental prices continue to rise at a rate of 9% compared to the previous year, according to estate agents Hamptons.
Data from the Office for National Statistics reveals that UK annual rent increases have set a record for the past 12 consecutive months leading up to April 2022. Although the pace of annual rental growth may be slowing down, renters will still struggle as rents that were already unaffordable continue to rise.
The supply of rental homes is now a growing concern, as higher mortgage costs deter landlords from investing in buy-to-let properties. Major lenders like HSBC, Nationwide, and Santander have recently raised their mortgage rates, adding more pressure on landlords. The CEO of Foxtons, Guy Gittins, states that the supply and demand imbalance in the rental market is the worst he has ever seen and will likely worsen. Richard Donnell of Zoopla echoes this sentiment, stating that rental prices will continue to rise unless there is a significant increase in rental supply or a decrease in demand, both of which are unlikely to happen.
The current situation for renters is dire, with approximately 5.5 million private rental homes in the UK. More than a third of these households spend half of their take-home pay on rent, resulting in severe rent burdens. Evictions due to rent arrears have reached record highs, while “no fault” evictions have also increased significantly.
Industry experts attribute the strained rental market to the severe shortage of rental properties to meet the ever-growing demand. The lack of rental homes is indicative of the overall housing shortage in the UK. The number of new homes being built is still below the government target, and big developers predict a further decline in construction due to higher borrowing costs.
The shortage of social and affordable housing has also contributed to the influx of people into the private rental market. More than 1 million households in England are on waiting lists for social housing. Urgent action is needed to address the state of the rental market. London mayor Sadiq Khan and other city leaders are calling for a cap on rent increases, as is being done temporarily in Scotland.
One of the main challenges in the rental market is the plight of private landlords. Unlike many European countries where institutional landlords are prevalent, the UK relies heavily on small private landlords to provide rental properties. These individual investors, often referred to as “mum-and-pop” investors, are facing significant issues due to increased tax bills resulting from tax reforms introduced between 2017 and 2020.
The removal of mortgage interest deductibility and the implementation of a tax credit has already made it unprofitable for some landlords to continue renting out their properties. Higher mortgage costs exacerbate this problem, with landlords being forced to sell their properties because they can no longer afford the mortgages.
Furthermore, the demographics of landlords in the UK may result in an increase in property sales by landlords looking to cash in on their investments. Hamptons reports that 140,000 landlords retired last year, and shifting demographics indicate that more landlords will be selling their properties in the next five years.
The consequences of these negative developments for landlords have resulted in a dearth of new properties entering the rental market. Despite the surge in buy-to-let mortgages, the number of privately rented homes has remained stagnant since 2015 as tenant demand has increased. Increased net migration in the UK has also contributed to rising rental prices.
Although affordability concerns may eventually curb rent hikes as tenants are forced to choose smaller homes or relocate, the current situation remains challenging for renters. Immediate action and solutions are needed to address the rental housing crisis in the UK.
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