New research suggests that despite an increase in activity following the spring lockdown, the UK’s rental market hasn't recovered as well as the sales market. As such, expectations are that average rents will decline by 1% in both 2020 and 2021. However, while that might be a disappointing outlook for some, separate data shows that many first-time buyers (FTBs) are now planning to remain in rental accommodation for longer amid coronavirus-related uncertainty, which is a positive for the lettings industry.
According to property management firm Hamptons International, the rental market recovery hasn’t been as robust as previously expected. That has led the firm to forecast a decline in average achieved rents across the country for two consecutive years. However, mortgage lender Aldermore says that financial uncertainty linked to the Covid-19 pandemic has seen some FTBs delay their home buying plans. This, in turn, has provided an indirect boost to the country's lettings industry.
Private Rental Sector to Stall
Earlier in 2020, it had been anticipated that the period where homes moves were limited due to the pandemic lockdown rules had led to a build up in demand for rental homes moves and that this would fuel a boom in post-lockdown activity, driving an increase in rents. However, while in some areas rents have climbed, looking at the UK as a whole, its likely that fewer tenants in the country’s PRS have moved or been willing and able to pay a higher rent.
Against this backdrop and considering the wider implications of the coronavirus-induced recession, Hamptons International expects the average rent across the UK to slip in 2020 and 2021 before rising by 2.5% in 2022. However, although they forecast an increase by 2022, the property management experts expect the UK’s rental market will not begin to grow again until 2023.
“Growth in the private rental sector has levelled off in the past few years because more people in the 25-34 year age group are climbing onto the housing ladder,” Hamptons said in its latest housing market update. “We argue that it is unlikely that the private rented sector will become larger over the period to 2023.”
Meanwhile, although expectations of a decline in average rents isn’t the best of news for PRS landlords, separate research suggests it could have been a steeper drop but for certain market dynamics.
Job Uncertainty Stalls some FTB Moves
Mortgage lender Aldermore reports that around half of the FTB’s it has surveyed have delayed their home buying plans for just under a year due to the impact of the pandemic. The main reason behind those delays are job and earnings uncertainty. Even where someone planning to buy their first property may remain in steady employment, the future is currently unclear which has seen a number of potential FTB’s push back their plans to buy a home.
Another reason behind some potential buyers delaying their plans is likely linked to the withdrawal of some mortgage products and higher deposit and loan-to-value rates on the market, as lenders seek to minimise their lending risks.
Although the stamp duty holiday has proved positive for some buyers, for others a change in priorities for their first property, such as wanting more space or to be near to accessible outdoor areas, has meant they must save for a larger deposit to cover the additional costs associated with those features.
Overall, financial security is the main factor behind many delays among FTB purchases, which Aldermore head of mortgage distribution Jon Cooper says is only to be expected.
“The wider economic recovery will be the real determining factor for how the first-time buyer market performs this year,” Cooper said. “First time buyers need job security if they are to feel confident in taking the plunge in what is one of the biggest financial investments of their lives.”