Property demand shifts from buying to renting

The demand for rental homes has increased as the survey suggests that first-time buyers are deserting the property market because of high mortgage rates. New figures published by Rightmove indicate that demand for rental properties was 23 per cent higher in October than during the same period last year.

The report highlights that many first-time buyers are looking at renting in the short term as an alternative to buying but have few options, the report warned.

The number of small rental homes – studios, one- and two-bedroom properties on the market was 4 per cent down compared with last year. Letting agents report that they receive an average of 36 enquiries per property, with competition between tenants at a record level.

 The average rent on a newly let home in Britain rose to £1,204 per calendar month, according to the latest lettings index from Hamptons. It means tenants are now paying £80 a month or £960 a year more than last year.  

 Why is rental demand increasing?

Tim Bannister of Rightmove says that some buyers, in particular first-time buyers, are waiting for some more financial certainty. According to Moneyfacts, mortgage rates spiked following the mini budget in September, with the average two-year fixed deal climbing to 6.65 per cent from 4.74 per cent between September 23 and October 20.

It led to a slowdown in demand from people looking to buy a property and an increase in people wanting to rent in the short term as they waited for things to settle. According to Zoopla, since September, the asking price of one in four properties for sale nationwide and one in three in southeast England has been cut as buyers are put off by high mortgage rates. 

Shortage of rental properties:

Letting agents say the jump in rents is primarily because of the shortage of homes available to rent. Hamptons estimates that 47 per cent fewer homes were available to rent than there were two years ago. Some believe this is due to landlords being frustrated by recent tax changes and choosing to cash in during the recent market frenzy amides the strong demand from owner-occupiers.

Why is buying demand falling?

According to a survey reported by Reuters, British property market activity stalled in October and house price growth slowed to its lowest level since February 2020 due to the disastrous mini-budget. Buyer's demand fell 44 per cent year-on-year in October, while sales volumes were down 28 per cent compared to a year earlier but on par with pre-pandemic levels.

As rental demand increases to record levels and buyer demand falls significantly. Many potential buyers, especially first-time buyers, have postponed their purchase of new property and moved towards renting, at least in the short term.

Tim Bannister of Rightmove says that now that there are signs that mortgage rates are settling down, the indicators are that they will stabilise at a higher level than previous buyers have been used. Suppose someone has a deposit saved and is ready to move. In that case, they may find that right now presents a better opportunity than a few weeks ago, mainly because more choices are coming on the market and some sellers are pricing more competitively in the lead-up to Christmas.