With demand heavily outweighing supply, the residential letting market continues to outstrip the sales market with little sign of slowing in the near future.

A major imbalance of supply and demand for rental properties has led to a surge in rents over the last year, with no cooling in the pace of increases expected soon.

This is the conclusion reached by the director of research & insights at Cluttons, Gráinne Gilmore, who recently spoke to Iain McKenzie, CEO of The Guild of Property Professionals, about her views on the letting market in 2023.  

She said: “All data is pointing to rental demand continuing to exceed rental supply, which will put upward pressure on rents. But if we consider the ‘roll over’ tenancies – where landlords, keen to keep a good tenant and so come to an individual agreement on rent rises – in conjunction with the new lets, the average rental price growth will be closer to mid-single digits during the course of the year rather than the current double digits we are seeing now.”

Gilmore added that the stock of rental properties is currently being eroded, which is adding to the demand levels.

She continued: “Over the past five years the various policies and tax changes that have come into the buy-to-let market, means that some landlords have had to review their portfolios. There are more legislative changes still to come such as EPCs, which up until now landlords have not had to think about.

“If the property isn’t meeting the required EPC levels, landlords will have to make the decision to either spend the money to get the property to where it needs to be to meet the requirements or sell. Over the next few years there will be a few elements that will have landlords question whether they would want to reduce the size of their portfolios,” Gilmore comments.

McKenzie said that, as mentioned, there are a large portion of landlords who would rather maintain their rental price, than risk losing a good tenant. “Over the next while, there will be a certain number of landlords that have their fixed rates coming to an end and their buy-to-let mortgages will be increasing. Is it then an evitability that the portion landlords who are keeping their rent as it is to keep tenants, will start to erode as they absorb the increased cost of the mortgage?” he asked.

That could well be the case, answered Gilmore. “Tenants won’t be unaware of this changing financial situation. There may still be a conversation to be had, but anecdotal evidence suggests that in many situations landlords are losing money and will need to potentially rearrange their agreements with tenants. There are obviously landlords who own outright and are not dependent on mortgages, or those who are on longer fixed terms, so this will be an incremental change over time across various markets. Therefore, that may not be enough to impact overall rents, but you will see a changing ownership structure for the rental market.”

According to Gilmore the pressure being placed on the rental market comes in the face of demand which has now extended out and is covering every sort of rental demand across the UK, so while social housing would have played a part in meeting that housing demand in previous decades, there isn’t enough to go around. So, the private rental sector is now catering for the wide expanse of housing needs there is in the UK.

“Individual landlords are responsible for that to a certain extent, but there is no cohesive recognition of that fact at the moment. While everyone to trying to increase house building, social housing, and affordable rents, it is not happening at the level needed to keep up with demand,” she added.

To hear more of the conversation visit The Home Stretch podcast.