Industry experts have warned that rising rental prices could potentially negatively impact the PRS, as the latest Foxtons data revealed a 11% year-on-year rise in average weekly rent, but a 9% year-on-year decline in renter demand in London.
The firm’s August lettings market index also highlighted a rise in property supply in the capital, with Foxtons reporting a 10% increase in new instructions across London.
Despite this, the total volume of renter registrations was lower than the previous year, and was more in line with levels of demand seen in 2021.
Central London saw the steepest demand drop of -15%, followed by east, west and north London (-8%).
Narinder Gill, associate at Coreco Specialist Finance, said the increase in rents was likely a result of significant increases to landlords’ lending costs over the last 12-18 months, which have pushed them to pass these onto tenants.
“First-time renters and movers are also feeling the effects of an increased cost of living and inflationary pressures. Those who perhaps were looking to move into rented [accommodation] may be looking to stay with family or move into share accommodation, which may go some way to explain the lessened demand.
“High rental prices could substantially contribute towards a stagnant rental market and perhaps remove the ability for some renters being able to move out and save up deposits for home purchasers — this is quite concerning and unwelcomed,” he warned.
Jonathan Samuels, CEO at Octane Capital, also cited similar reasons for the drop in demand:
“As rents increase so rapidly, it makes renters feel very insecure, even those who can just about afford the rent increase — some might move in with family if this is an option, thus reducing the number of renters in the market, while others might choose to live in cheaper locations.”
“Either way, the effects of this will add to political pressure to introduce rental caps which will ultimately be damaging and cause long-term damage to the rental market,” he added.
Despite this, Jonathan sees a silver lining for both landlords and tenants: “Landlords will be pleased to see that rents have increased by 11% year-on-year in London, as this is needed for them to meet increasing interest costs on their BTL mortgages.
“Renters can also take comfort that an end is in sight to the rental increases — increasing supply and falling demand is a recipe for prices to stop increasing and maybe start falling.”
Estate agent Jeremy Leaf confirmed he had indeed noticed a recent fall in the quantity of rentals lately.
“Tenants seem more inclined to renew existing arrangements including zero or minimal rent increases if possible, rather than trying to seek new tenancies, while landlords are often trying to accommodate their increased tax, mortgage and regulatory burdens via higher rents,” he said.
“We’re definitely seeing more tenants approaching an affordability ceiling, as cost of living increases continue to bite.
“Of just as much concern to the health of the market is the number of longer-term landlords leaving the sector, which will do little to improve standards and only increase upward pressure on rents.”
