UK rents rise as supply falls and house prices remain subdued

The UK rental market is facing a supply-demand imbalance with rents expected to rise by 4% in the next year, the Royal Institution of Chartered Surveyors (RICS) reveals.

Meanwhile, the house price outlook remains gloomy, with no signs of recovery soon.

According to the RICS UK Residential Survey for October, tenant demand increased modestly in the three months leading up to October, with a net balance of +33 of survey respondents reporting an increase.

This is the lowest reading for tenant demand since the second quarter of 2021, when it was +59.

Landlord instructions continue to decline

RICS also says that landlord instructions continue to decline, with a net balance of -18 of survey participants noting a decrease in the same period.

That is slightly less negative than the previous quarter, when it was -28, but still indicates a lack of supply in the rental market.

As a result of this mismatch, rents are projected to increase in the short and medium term.

A net balance of +53 of survey respondents predict rental prices increasing over the next three months, slightly lower than the record high of +61 seen in the third quarter of 2023.

Over the next 12 months, rents are expected to rise by around 4% on average across the UK.

Bleak picture of the UK housing market

The report also paints a bleak picture of the UK housing market, with house prices continuing to fall and sales activity remaining weak.

The survey indicator for house prices nationally saw a net balance of -63 in October, slightly less negative than -67 in September, suggesting that the pace of decline may be slowing down as the year ends.

For agreed sales, a net balance of -25 was recorded in October, slightly less negative than -35 in September, but still consistent with the low level of activity that has been observed throughout the month.

Sales expectations for the next three months are also pessimistic, with a net balance of -20, little changed from -22 in September.

‘Plenty of caution remains evident’

RICS’ senior economist, Tarrant Parsons, said: “Plenty of caution remains evident with respect to both buyer and seller activity across the UK housing market, albeit the latest survey feedback points to a slightly less negative picture than that reported over the previous few months.

“Although base interest rates have now been kept on hold at each of the past two MPC meetings, the Bank of England was keen to emphasise that monetary policy is set to stay at a restrictive setting for quite some time yet.”

He added: “As such, mortgage affordability will remain stretched over the near-term, leaving little prospect of a strong rebound in residential sales volumes, even if expectations have now moved away from cyclical lows.”

‘More misery for renters’

Sarah Coles, the head of personal finance at Hargreaves Lansdown, said: “October brought more misery for renters, with yet another rise in tenant numbers and a drop in the number of landlords.

“The Renters (Reform) Bill, the threat of which persuaded so many landlords to leave the market, was carried forward in the King’s Speech.

“The government is hoping to pass it during the next session, which could see more landlords sell up – and push rents up even further.”

She added: “The tenor of the agent’s comments is increasingly desperate, as they can’t see a solution emerging.

“Given that the Bill is designed to protect renters from the threat of eviction, it’s horribly ironic that it could mean even more of them struggling to find a home in the first place.”

‘Property market pushed prices lower’

Ms Coles continued: “The stalled property market pushed prices lower in October, according to RICS. But for sellers, the real headache is that stagnating sales mean it’s incredibly difficult to shift a property.

“If they’re going to sell, they need to be brutally realistic about what their home is worth.

“Not only have sales slowed to a snail’s pace, but RICS says there are fewer properties coming to the market right now, so there are fewer in the pipeline for the rest of 2023.

“This could end up supporting house prices, and confounding the expectations of agents who are predicting more price falls in the coming months.

“However, this is meaningless for sellers if they can’t persuade anyone to buy.”

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