Red-hot rental market intensifies as buyers hit the pause button

Demand for rental properties is picking up as potential buyers hit the pause button to see what happens to mortgage rates in the new year, new data suggests.

The number of people inquiring about a rental move has increased by 23 percent from a year ago, according to Rightmove.

This is because mortgage rates skyrocketed after Kwasi Kwarteng’s ill-fated mini-budget, which saw average two- and five-year fixed rates exceed 6.5 per cent, adding hundreds of pounds to homebuyers’ monthly payments.

Rightmove’s data suggests this has led some would-be buyers to look to the rental market as a short-term alternative as they wait and see where mortgage rates go.

The average five-year fixed mortgage rate has since fallen to 5.95 percent, according to Moneyfacts, but this compares to a level of 2.64 percent at the start of the year.

The total number of people wanting to move in the owner-occupied or rental market combined is just 1 percent below last year’s level, Rightmove said.

The real estate website further claimed that there are signs that mortgage rates and availability are starting to stabilize after a turbulent two months, with indications that they could fall further next year.

Rightmove claimed that first-time buyers have been hit hardest by the rise in mortgage rates, especially those who were already struggling financially.

And for this group of future first-time buyers, the competition for a suitable rental home will probably be much fiercer than on the owner-occupied market, because the choice is limited.

The number of smaller available rental properties – including studios, one- and two-room homes – fell by 4 percent compared to last year and by 13 percent in the owner-occupied market.

Rightmove found that four in 10 — up from 42 percent — of aspiring startups with plans to get up the ladder in the next few years had already saved their entire down payment, while another 43 percent are in the process of saving.

The real estate website said it indicates there is a group of prospective first-time buyers waiting in the wings to enter the market once they feel they have more financial security.

North London real estate agent Jeremy Leaf said: ‘In practice we have seen particularly aspiring first-time buyers who seriously considered buying with a relatively high loan-value mortgage a few months ago and found that additional amounts requested were simply too much for some to wear.

“It’s a double-edged sword for rentals because it increases demand for rental properties and pushes rents further upwards, making it even more difficult to make a down payment.

“There is a feeling that not only will loan rates fall, but property prices will fall as well, so maybe it’s worth waiting before buying.

Still, both assumptions can be dangerous. In the case of mortgage rates, there are many other factors at play, not least the determination of the government and the Bank of England to smother inflation out of the economy.”

A Rightmove survey of rental agents found they manage an average of 36 applications per property and spend nearly six hours managing viewings per property in what it says is the most competitive rental market ever, with the number of tenants available as rentals quadrupling .

The red-hot rental market

Rightmove rental expert Christian Balshen said: ‘It’s extremely frustrating for so many people in the rental market right now, with such high demand.

“Tenants are trying to secure viewings for homes as soon as they hit Rightmove, and the shortage of inventory has left estate agents dealing with an unmanageable number of inquiries.

‘The number of aspiring starters who have now had to turn to the rental market only makes the situation worse.

“We are seeing more properties come on the market, but nowhere enough to meet demand. We hear from estate agents that finding more information about a tenant sooner is one way to meet demand, so we recommend to anyone looking now to provide as much information as possible about their position, how quickly they can move and to have their references to hand so they have a better chance of getting the place they want.’

It comes after a landlord charged £28,800 in annual rent for his home in a town that was voted the second worst place to live in Britain in 2014, only allowing renters with a salary of £72,000 .

The four-bedroom, two-bathroom East London property in Ilford is available to rent for £2,400 per month.

But the landlord requires the household’s combined income to be at least £72,000 a year in order to rent it.

Amardeep Lall, of rental agent Manning Stainton, said: ‘Since the pandemic began, the number of tenants looking to rent has far outstripped the number of available rentals.

‘This means it has become very competitive between tenants to get a viewing and a property as there are only a limited number of viewings we can book.