Rental stock shortage in lockdown to see UK rents rise

A reduction in rental stock entering the market as a result of the UK lockdown could result in higher rental and deposit costs for tenants in the UK, according to new research from Ome.

The rental deposit scheme investigated the percentage of buy-to-let (BTL) mortgage loans approved over the last five years as a percentage of all loans, and highlighted figures from the FCA that show the number of landlords entering the market with new stock has slowly declined every year since 2015, with an average annual drop of -1%.

Over the same period, Ome’s research showed the value of the BTL market has also diminished at an average annual rate of -1% a year, and is now worth £35.7m, compared to £37.4m in 2015.

Despite a declining level of stock entering the market, the rental deposit scheme suggested there has been growing demand which has seen the average UK rent climb by an annual average of 4% each year since 2015, and now sits at £743 a month, compared to £627 in 2015.

The average cost of a rental deposit has also increased at an average rate of 3% each year over the last five years, and Ome is predicting that any lasting reduction in rental stock due to the current pandemic could result in a much larger increase in cost for UK tenants in the long-term.

Ome co-founder, Matthew Hooker, commented: “Through no fault of their own, agents and landlords are facing a very tough few months with some tenants unable to pay their rent and some landlords facing much longer void periods due to a drop in market activity.

“The BTL market has already seen a notable decline in appetite following increases to stamp duty and changes to tax relief, with the number of BTL mortgages declining steadily since 2016. It is no coincidence that rents have also climbed rapidly during this time.

“As a result of these latest market developments, we could see many decide to exit the sector,  or opting to refrain from a BTL investment for the foreseeable future at least. This further reduction in stock would have grave implications for the nation’s tenants who have already seen the cost of renting increase due to an imbalance between demand and supply.

“The industry has already predicted an increase in rental costs due to the ban on tenant fees but with even less stock now likely to be available, this increase in rent and the upfront deposit required to secure a property could be far higher than predicted.”

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