With the Credit Squeeze in the Rear View Mirror - What's Happening in the Rental Market?

With the credit squeeze seemingly further and further away in the rear view mirror, what is going to happen to the private rental market?

In the most recent rental index by Move with Us, advertised rent has decreased in almost all regions, with only Greater London maintaining a strong increase.

These results can largely be put down to the introduction of the Help to Buy scheme.

The 1st phase of Help to Buy was directly linked to the building of new houses. This easier access to financing new property has helped to rejuvenate the housing stock which has in turn pushed down rental income as supply increases. The recent CIPS/Markit survey showed the strongest growth in private house building since 2003.

Furthermore, the newly brought forward second phase has eased the competition in the rental market: “Those who would ordinarily rent are opting to buy, putting downward pressure on rental prices as demand reduces. With this in mind, we anticipate further falls in advertised rents in the coming months, as the market starts to stabilise and reverse the over inflated rental prices that we have seen in the past few years”
Said Robin King, director of Move with Us.

However, while this new phase has certainly impacted on rental prices, it has removed the link with new construction with the potential resurrection of demand but not supply. The question then is how long will these prices be supressed?

The unprecedented low interest rates have been one of the main drivers in the strength of the recent buy to let boom. It is important therefore, to note Mark Carney’s words last week: “The recovery has begun, it is strengthening. But we are not going to withdraw monetary stimulus until it has gained that traction.”  Certainly, this is encouraging with these low rates set to continue however it leaves scope for an earlier rise if the success of Help to Buy is coupled with a strengthening economy.

Already the Bank of Ireland and West Bromwich Building society have already raised their tracker rates despite no movement in the bank of England base rate causing higher mortgage repayments directly impacting landlords’ business.

Alongside this, the markets are continuing volatility represent a riskier alternative to property.

Whatever the rates and markets, there seems to be no reversal to the cultural shift taking place as ever more youngsters are moving to away from home to go to university and are increasingly reticent to move back the same area on graduation.

Meanwhile, as the population continues to grow faster than houses are built there are always going to be opportunities in this sector.