According to the latest findings from Paragon Bank, the end of 2023 saw a significant spike in tenant interest.
Six out of ten landlords have reported an increase in tenant interest in the last quarter alone, signaling a competitive market as we step into the new year. Digging deeper, over a third of property owners have witnessed a substantial rise in demand, with another quarter observing slight yet notable increases. The data suggests that the rental market’s vitality is not only persistent but intensifying.
Interestingly, a mere 16 percent of landlords haven’t seen any change in demand, and an even smaller fraction (4 percent) reported a decrease. This imbalance between supply and demand is reshaping the rental economy, particularly in certain regions.
Regional Hotspots
The North West emerges as the epicenter of this burgeoning demand, where a whopping 75 percent of landlords reported an increase in tenant inquiries. Yorkshire & The Humber and the East Midlands are not far behind, with 74 percent and 71 percent of landlords, respectively, experiencing similar trends. These areas are witnessing a rental renaissance, with more and more individuals and families seeking homes, outpacing the available supply.
Rental Inflation
A direct consequence of this heightened demand is a noticeable uptick in rental prices, especially in the most sought-after regions. The survey links soaring tenant demand with rental inflation, revealing that landlords in high-demand areas are more likely to hike up rents. For instance, nearly nine in ten landlords in the East Midlands, North West, and Yorkshire & The Humber have seen rents rise—a stark comparison to regions like the South West and Outer London, where the increase is somewhat less pronounced but still significant.
Rent Increases on the Horizon
With the rental market’s temperature rising, about half of the landlords surveyed are contemplating rent increases within their portfolios in the next six months. The primary motivator? The soaring cost of maintaining properties. Other factors include aligning with the market’s overall rent trajectory and the impact of rising mortgage costs, though the latter’s influence has slightly diminished from the previous quarter.
The Bigger Picture
Richard Rowntree, Paragon Bank’s Managing Director of Mortgages, sheds light on the broader implications of these trends, “Although tenant demand has come off its record highs, there remains a chronic supply demand imbalance across large parts of the country. Although it’s a complex issue with many factors at play, the supply and demand dynamic dictates that we pay more for goods and services that are in high demand and short supply. It is unsurprising then to see that the landlords in the regions seeing the most demand are amongst the most likely to see rents rising. This illustrates how a healthy, sufficiently supplied PRS is needed to maintain rent levels that are affordable for the millions of people that live in rented homes.”
Rowntree’s analysis points to a fundamental economic principle: prices surge when demand outpaces supply. Hence, the regions experiencing the highest demand also see the most significant rent increases, highlighting the importance of addressing the supply issue to ensure affordability for renters.