With the surge in property demand in recent times, we’ve seen some remarkable shifts in the rental market. Potential tenants are offering considerably more than the advertised rent, some up to a whopping 30%. This development is a clear response to the increased demand for rental properties, which has overtaken supply. This growing trend comes with a mix of opportunities and challenges for investors, which we’ll be addressing in this detailed breakdown.
Addressing the Rising Demands
According to data analysed for iNews, exclusively by Dataloft, there’s been a significant rise in tenants willing to pay above the asking price. In particular, an average of 15% of rental transactions are now concluding at rates above asking price. This percentage has more than doubled since 2019, when it was recorded at just 6.8%.
This trend has been growing steadily, rising to 10.1% in 2021, and further to 13.6% in 2022. It’s clear the balancing act between demand and supply has tipped, and the scale of increase suggests tenants are determined to lock in homes.
The Power of Enquiry: A Trend of Tenacity
Another interesting development is the increase in enquiries made per property. Rightmove, a leading property site in the UK, reports that there are now 25 enquiries per property. What’s remarkable is that this number has tripled since 2019, and this is despite rents currently being at an all-time high.
In fact, according to Rightmove, rents have reached a new national high, courting an average of £1,278 per month. To put this into perspective, that’s about 10% higher than the rent rates a year ago.
Backstory: The Cause for the Climb
While it’s important to identify these trends, it is equally vital to understand why they’re happening. This sheds light on important considerations for property investors to make sound decisions. For starters, rising mortgage rates is a leading cause of increases in rent. For landlords relying on a mortgage, the rates they pay have become higher than those for homeowners, compelling them to adjust by raising rent.
Coupled with this is the issue of supply scarcity. As profitability declines, more landlords are cashing out, leading to a shortage of rental properties. This trend exacerbates the challenge for tenants looking to move and has a direct impact on the increase in rent prices.
The Geographical Spin: Regional Differences Matter
The amount potential tenants have to pay above asking price also varies across the country. For instance, London’s tenants appear most affected, paying 30% more than asked, which is a significant leap from 12% in 2019. Tenants in the South East have seen a similar increase, with current overpayments averaging at 14%, up from 6% four years prior.
The trend continues in the South West and East of England, with tenants offering over 11% above asking prices. However, in the North East, price hikes have been less dramatic, with tenants overpaying by only 7%. Closely trailing this northern region are the East and West Midlands and Scotland, where homes attract over 8% more than the asking price.
Reflections from Market Insiders
According to Sandra Jones, Managing Director of Dataloft, the intense pressures in the rental market have forced many renters to exceed the asking rent to secure a rental home. This pressure shot up in 2022, resulting in a reluctance by existing tenants to relocate, exacerbating the supply strain.
Additional data from estate agents Hamptons shows a similar trend. Approximately 83% of landlords are managing to secure a higher rent when renewing a tenancy, compared with just 42% back in 2014. Certain regions have higher percentages with Wales leading at 90%. Yorkshire and the South West trail closely at 88%, while the South East records a rent hike rate of 87%.
Around 76% of landlords get a higher rent when reletting to new tenants, with this statistic rising to 84% in London and 81% in the West Midlands. As explained by David Fell, the lead analyst at Hamptons, rising mortgage rates have forced landlords to increase rents to balance their books.