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According to recent data from the latest Hamptons letting index, landlords are holding onto their properties more than in the past few years. The share of homes sold by landlords has fallen so far this year, from 15.7% in 2022, to 14%. Essentially, investors are set to sell 53,000 fewer properties than 2022 and 62,000 less than in 2021 when sales had peaked.
Higher Rates for Landlords
Whilst it has been argued that landlords are seeing higher rates than anyone else, it seems that many are now deciding to stick it out to reap the rewards of the highly concentrated rental market. The rental market continues to see strong growth as prices show little signs of slowing. Rents have risen 11.7% year-on-year in October, the same annual pace as in September; this means that the average rent on a newly let property has risen £141 compared to the same month last year, bringing the average up to £1,345. This rent increase has marked the third consecutive month of double digit increases and the sixth double digit increase in the last year.
Mortgage rates, a particular area that may be pressing on landlords, seem to be settling. To tackle soaring inflation, the Bank of England raised interest rates 14 times in a row but, over the last month, rates have been held steady at 5.25%. By raising interest rates, the intention is that borrowing becomes more expensive meaning people have less to spend and, in turn, demand falls. Businesses then put their prices up slower. As mortgage rates tend to rise and fall in line with official interest rates we have seen the average two-year fixed residential mortgage rate fall to 6.26% from 6.29% recently, while the average five-year fix shifted down from 5.87% to 5.84%.
Are House Prices Rising?
The UK has seen the first rise in housing prices since March after continuous falls, for the past six months, due to a drop in supply. In October, prices rose 1.1% from September bringing the average property price up to £281,974, an increase of almost £3,000. This has been brought about by prospective sellers adopting cautious attitudes.
Whilst a shift in supply has caused this price increase, buyer demand remains weak making it likely that we will only see these price rises in the short term. Essentially, it is expected that house prices will fall further overall; Lloyd's Bank Group has predicted a further drop of 2.4% in 2024, before starting to rise again in 2025. It is important to consider the long term price trends rather than to get carried away by short term changes.
Buyers are finding themselves struggling to buy due to various barriers. Kim Kinniard, the director of Halifax mortgages has said that “whilst many people will have seen their income grow through wage rises, higher interest rates and wider affordability pressures continue to be challenges for buyers”. House builders have also responded to slowing demand by building fewer homes, which has helped underpin prices; levels of home building and net new investment by private landlords are falling and set to remain weak into 2024, due to the impact of higher borrowing costs.
Whilst buyer demand remains low, the rental market will be reaping the rewards of a higher demand as many would-be buyers are kept in the rented sector. It is likely that these tenants would be of high quality and willing to pay higher prices. In London, demand for rental properties remains high, as an average of 19 prospective renters express interest in each new property listing.
Holding onto a property, as a landlord, means there’s the likelihood of benefiting from increased yields in the future. It is important that landlords do not make impulse decisions when considering selling their property as doing so could have the potential of causing missed opportunities and large losses.
If you’re a landlord and want to enjoy a rental income without the hassle, consider joining a Guaranteed Rent Scheme. At Elliot Leigh Guaranteed Rent, our scheme offers 24/7 Maintenance, Property Inspectors and rent upfront amongst other benefits. Find out more here.