Tenant demand in the UK rental market continues to rise, while the supply of available homes for rent is falling, according to the latest Royal Institution of Chartered Surveyors (RICS) UK Residential Survey. This imbalance is contributing to upward pressure on rents amid a weakening sales market and ongoing economic challenges.
Rising Tenant Demand and Falling Supply
The RICS survey reveals that tenant demand increased to a net balance of +14%, indicating more respondents reported rising demand than falling. Conversely, landlord instructions to let properties remain negative at -17%, signalling a reduction in rental stock entering the market. This supply shortage is expected to sustain upward pressure on rents, with a net balance of +25% of respondents anticipating rent rises in the coming months.
These trends place additional financial strain on tenants, particularly as the sales market shows signs of weakening, limiting alternative housing options.
Weakness in the Sales Market
Homebuyer demand remains subdued, with new buyer enquiries at -34% in April. Although this is a slight improvement from -40% in March, it still reflects weak market activity. Agreed sales also remain low, with a net balance of -36%, nearly unchanged from the previous month.
House prices are under increasing downward pressure, with the headline house price indicator falling to -34% in April, compared to -25% in March. This suggests that sellers are facing more difficulty achieving their asking prices as market conditions soften.
Subdued Buying Sentiment Amid Economic Headwinds
Tarrant Parsons, RICS head of market research, attributes the subdued market sentiment to macroeconomic challenges, including the ongoing Middle East conflict. He notes, “Recent warnings from the Bank of England that interest rate rises may be required to tackle renewed inflation, driven by elevated oil prices and disrupted supply chains, underline the challenging environment facing buyers.”
Parsons adds that until there is clarity on inflation and borrowing costs, market activity and sentiment are likely to remain subdued, especially in southern England and London where affordability pressures are most acute.
Regional Variations in House Price Movements
House prices in London, the South East, East Anglia, and the South West are experiencing stronger downward pressure. In contrast, the North West and the North of England have posted marginally positive readings, while prices continue to rise in Scotland and Northern Ireland.
Near-term house price expectations remain negative at -38%, though this is an improvement from March’s -45%, suggesting some cautious optimism among survey respondents.
Industry Perspectives on Rental Market Dynamics
Tom Bill, head of UK residential research at Knight Frank, highlights the impact of recent legislation, stating, “The Renters’ Rights Act has reinforced the imbalance between supply and demand in the rental market, which will sustain upwards pressure on rents.” He warns that future green regulations for landlords, if introduced without effective consultation, could further restrict supply and intensify rent increases.
Bill also points to the combined effects of rising mortgage costs due to the Middle East conflict and energy price shocks, alongside political developments, as factors squeezing buyers. He observes that while some buyers with mortgage offers predating the conflict are keen to proceed, downward pressure on prices is expected as those offers lapse. He forecasts minimal UK house price growth of around 1.5% this year, contingent on geopolitical and political developments.
Jeremy Leaf, a north London estate agent and former RICS residential chairman, notes that while the Renters’ Rights Act has prompted some landlords to sell, the numbers are not as high as initially feared. He explains, “The resultant shortage is supporting rents which would have probably otherwise dipped bearing in mind continuing tenant affordability concerns.” Leaf adds that although demand has improved slightly recently, the rising cost of living—partly due to the conflict in Iran—is frequently cited as a reason tenants are cautious about increasing rental offers.
What this means for landlords
Landlords should be aware that tenant demand remains strong despite rising living costs, and the supply of rental properties is tightening. This environment supports rent increases, but affordability pressures on tenants may limit the extent of these rises. Additionally, potential new regulations, particularly related to environmental standards, could further impact rental supply and costs.
In the sales market, subdued buyer activity and downward pressure on prices suggest that landlords considering selling may face challenges achieving desired prices. Monitoring regional market variations and economic developments will be crucial for informed decision-making.
Source: Based on reporting from Property118
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Source: www.property118.com
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