Do you have questions about what is happening in the rental market at the moment?
Are you a landlord, or perhaps an aspiring landlord, looking at the property market and wondering what on earth is going on? Prices are reaching crazy levels, and there seems to be hardly anything available. This article delves into the rental property market to shed some light on what is happening and how it can help you.
Landlords will largely ignore the property market entirely unless they have a vacant property, a mortgage that needs to be renewed, or they're looking to buy more properties for their portfolio. At these times, there's an element of research to find out what the property is worth, how much equity there is in the property, and how much rent can be charged so that you can calculate the rate of return and annual income that the property can or should be generating.
Ordinarily, this research will take the form of a scour of the property portal websites to see how properties like yours are performing both for sale and rent, to give an idea of the rental and sale values. But, at the moment, there is a chance that no properties like yours will be available on the rental market. There are no properties to assess to allow you to gauge the rate of return, and this is largely the reason for the current hubbub in the rental market.
Post-pandemic, there was an unforeseen and rather sudden increase in the demand for property. Buyers started buying as soon as we were released from our lockdown; it was as if we were all desperate for something new, like we'd looked at the same four walls so intently we simply couldn't stand to stay in that property a moment longer.
This sudden influx of new buyers to the market increased the demand for property, which, in turn, caused the prices to rise. Buyers had to fight for the property of their dreams, desperately increasing their offers or battling in sealed bids to secure a new home. The property sales market has been widely documented in the media; homeowners have bought new homes, mortgage lenders have loaned the mortgage funds, and sellers have sold at prices they might have never thought possible, but what does this have to do with the rental market?
Because the market value of property investments increased. Many landlords had a sudden rise in the capital value of their properties and decided to cash in. Unless the tenant living in the property could buy a new home at this point, they were forced to look for a different property to rent. Enough landlords selling up has reduced the number of properties in the private rented sector, but the demand, i.e., the number of tenant households, has largely stayed the same.
It's like musical chairs, and the number of chairs is going down and down, but there are still the same number of partygoers playing the game.
Desperation can often lead to flashing the cash; Money talks, after all. Some tenants try to outdo the competition and offer more money to the landlords, pushing the value of those properties even higher.
But why have we never seen this situation before? Well, because usually under 'normal' circumstances, as a landlord decides to sell up and remove their property from the rental market, a new landlord investor will be waiting in the wings as they build their own portfolio.
With housing prices so high over recent years, the number of new landlords in the market has almost fallen off a cliff. The figures just don't stack up as well as they used to. The price of purchasing the investment property is so high that the yields and rates of return on the investment are not as attractive as they used to be.
In all honesty, the only way that landlords will start to invest in property again is if the property prices drop considerably. Then we will likely see swathes of new landlords entering the market, and the pot of potential rental properties will be replenished. But how long will that take? How long is a piece of string!?
Some top investors have been predicting a housing market downturn for years. When the pandemic hit, the estimations were up to a 30% reduction in property values almost overnight, but quite the opposite happened. And we are three years on with no real downturn. Of course, the property market has slowed a little, but values still haven't dropped below pre-pandemic ranges. In reality, if you'd bought an investment post-pandemic, you would've had three years' income from the property and still have an asset worth at least the same as you paid for it.
If you are considering buying an investment property, perhaps now is the perfect time? What are you waiting for?
No one has a crystal ball, and if you've been waiting for the promised drop, you've been waiting for three years. The average rental price in the UK at the moment of £1,229, according to Homelet (June 2023), so you've missed out on over £44k in rental income!
Don't delay! Rental prices and the rental market have never been this strong. Get in touch with our team of property experts for advice on your investment and portfolio today.