Tenant demand for rental properties in the UK continues to rise, while the supply of homes available to rent is falling, according to the latest findings from the Royal Institution of Chartered Surveyors (RICS) UK Residential Survey. This imbalance is contributing to upward pressure on rents amid a weakening sales market.

Rising Tenant Demand and Falling Supply

The RICS survey revealed that tenant demand increased to a net balance of +14% in April, indicating more tenants are actively seeking rental properties. In contrast, landlord instructions to let properties remained negative at -17%, signalling a decline in the number of homes being offered to the rental market. This supply shortage is expected to sustain rent increases, with 25% of respondents anticipating rents will rise in the coming months.

These trends place additional financial pressure on tenants, particularly as the sales market shows signs of weakness, limiting alternative housing options.

Weakness in the Sales Market

Homebuyer demand remains subdued, with new buyer enquiries at a net balance of -34% in April. Although this is a slight improvement from -40% in March, it still reflects a lack of activity in the market. Agreed sales also remain low, with a net balance of -36%, virtually unchanged from the previous month.

House prices are experiencing increased downward pressure. The headline house price indicator fell to -34% in April, compared with -25% in March, highlighting growing concerns over price declines.

Subdued Buying Sentiment

Tarrant Parsons, head of market research at RICS, commented on the challenging environment: “April’s results show a housing market still in the grip of macro headwinds stemming from the Middle East conflict.” He noted that recent warnings from the Bank of England about potential interest rate rises to tackle inflation—driven by elevated oil prices and disrupted supply chains—add to the difficulties faced by buyers.

Parsons added, “Until there is a clearer path for inflation and borrowing costs, activity and sentiment look set to remain subdued, particularly across southern England and London where affordability pressures are most acute.”

Regional Variations in House Prices

House prices in London, the South East, East Anglia, and the South West experienced stronger downward pressure. Conversely, the North West and the North of England posted marginally positive readings, with prices still rising in Scotland and Northern Ireland. Near-term house price expectations remain negative at -38%, although this is an improvement from -45% in March.

Industry Perspectives on Rental Market Pressures

Tom Bill, head of UK residential research at Knight Frank, highlighted the impact of recent legislation: “The Renters’ Rights Act has reinforced the imbalance between supply and demand in the rental market, which will sustain upwards pressure on rents.” He warned that future green regulations for landlords, if introduced without effective consultation, could further reduce supply and intensify rent increases.

Bill also pointed to broader economic factors: “After mortgage costs were pushed higher by the Middle East conflict and associated energy price shock, the prospect of a new government to the left of Keir Starmer brings its own inflationary concerns and has squeezed buyers further.” He expects minimal UK house price growth of 1.5% this year, contingent on developments in the Middle East and Westminster.

Jeremy Leaf, a north London estate agent and former RICS residential chairman, observed that while the Renters’ Rights Act has prompted some landlords to sell, the number is not as high as initially feared. He noted, “The resultant shortage is supporting rents which would have probably otherwise dipped bearing in mind continuing tenant affordability concerns.” Leaf added that demand has improved slightly in recent weeks but that the rising cost of living, partly due to the conflict in Iran, is limiting tenants’ willingness to increase rental offers.

What this means for landlords

Landlords should be aware that tenant demand remains strong despite affordability challenges, and the supply of rental properties is tightening. This environment is likely to sustain upward pressure on rents, offering opportunities for rental income growth. However, landlords should also consider the potential impact of forthcoming regulations and economic uncertainties, which could affect both supply and tenant affordability.

Engaging proactively with tenants and staying informed about legislative changes will be crucial in managing portfolios effectively during this period of market imbalance and economic volatility.

Source: Based on reporting from Property118

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