The rental market outlook for 2023

In a turbulent year, with the pandemic and in these unprecedented times, we look ahead to what this could hold for the rental market for 2023.  Covid-19 struck like lightning in an unexpected way and has disrupted the way of living for many and as a result, the housing and rental market has had to adapt to the impact of the virus. 

A brief snapshot of the rental market in the last 12 months

The current pandemic has led to great uncertainty, but how has the rental market faired over the last twelve months? 

According to the Bank of England two thirds of households own the house they live in; half of these are still paying off their mortgage. The remaining third of households are renters, split fairly equally between private and social renting. 

A report by the Office for National Statistics (ONS), states that private rental prices paid by tenants rose by 1.3% in the 12 months to January 2021, which was only a slight decline from the previous year. 

In England private rental prices grew by 1.3%, 1.6% in Wales and i.0% in Scotland in the last twelve months to January 2021. The English regions which performed quite well, was the South West and the East Midlands, at 2.2% each down from 2.6% and 2.4% respectively in December 2020. 

According to the Royal Institution of Chartered Surveyors’ (RICS’) January 2021 Residential Market Survey, tenant demand rose modestly in the three moths to January, and new landlord instructions continued to fall for a second quarter in a row. They also reported that rental growth expectations near-term strengthened slightly. 

UK private rental growth rates by country

Private rental prices grew by 1.3% in England over the twelve months to January 2021, according to the Office for National Statistics (ONS), which is down from 1.4% in the twelve months to December 2020. However when London is excluded from England, privately rented properties increased by 1.5% in the 12 months to January 2021. 

In Wales, private rental prices increased by 1.6%, in the twelve moths to January 2021, up from 1.5% in December 2020. Scotland also performed well with rental growth increasing by 1.0%. However Northern Ireland have outperformed the rest of the countries, as the annual rate of change was higher than the other countries, with the rental growth increasing by 2.7%. 

Changes in the private rented sector

According to the English Housing Survey, there are now, 4.55 million households renting privately in the UK, which is around double what it was in 2000, despite a fall of around 240,000 since 2016.  However there is one age group in particular which stands out in the sector, which are the 35-44 year olds. The chart below quite clearly shows that this age category is now more likely to rent rather than buy, therefore overtaking the traditionally ‘young’ renting population, with the numbers continuing to rise in this age category over the past five years. 

The chart below demonstrates how renters in the under-35 category have reduced. However, in all other age groups, and particularly 35-44-year-olds, the numbers have continued to rise over the past five years.

The overall outlook of the rental market in 2021

With unprecedented market conditions, we look towards the future at what the outlook could be for the rental market in 2021. According to the Royal Institution of Chartered Surveyors  (RICS) latest snapshot, rental growth expectations remain ‘slightly positive’.  This is however based on surveyor sentiment, rather than actual data, but the RICS says its letting sector members inmost parts of the country anticipate an increase in volumes and rent from early in 2021. 

Research undertaken by the London estate agency Hamptons reveals rental growth increased as stock levels have decreased across Great Britain. Outside of the capital rental growth increased substantially, hitting the highest figure recorded since Hamptons Letting Index began in 2021. A newly let property outside of London is 8% higher than in February last year, which equates to £68 higher per month. 

Landlords securing higher rent 

This strong rental growth has been fuelled by a lack of stock. Ever since the start of the COVID-19 pandemic, 300,000 fewer rental properties have come onto the market, which is almost a third less than during the 12 months prior. This in turn has worked in favour for landlords, as landlords are securing higher rent, than previously achieved, with rental accommodation in high demand. 

London’s rental market 

Research conducted by estate and lettings agency Portico, has revealed landlords are seeing particularly strong yields in areas of East London. Barking has the best rental yield in the capital with 5.9%, with this neighbourhood even having the lowest median house prices across Greater London. Other areas to have higher rental yields of 5.8% are Upney and Wall End, which are both located in East London. This highlights how important location is with the success of buy-to-let investment and this is particularly important, as new rental trends have been revealed. 

Renting will remain popular

Despite the uncertainty the rental market has performed strongly, especially during the last half of 2022. At certain points in the year, there was a demand in the private rented sector, which was 20% higher than in 2022, which shows rental homes being sought after properties.

Across the UK, renting will likely to continue to be on he rise throughout 2023. The uncertainty of employment will lead to people continuing to rent for longer and as saving account rates are at record lows, many people are struggling to save enough for a deposit. 

As Covid restrictions are eased and removed there is anticipation for others to return to normal office working which will therefore bring a risen in demand for rented accommodation. 

Tenants changing preferences and priorities

Demands have considerably changed amongst tenants, as well as an influx of short-term lets, which is shaping the buy-to-let market, with the COVID-19 pandemic. Post COVID-19 has revealed new rental trends, as priorities and preferences change amongst tenants. Demands have considerably changed and are now reflecting what homebuyers are looking for as well. Tenants are now increasingly looking for larger properties, better Internet connectivity and outdoor space, whether through a garden or a balcony. So people who are looking for studio flats to rent in London, or rooms for rent will be putting some of these priorities on the top of their list. 

The pandemic may have hit us all like a tornado, sweeping up everything in its path, but the rental market as faired well and with the Covid-19 restrictions being lifted demand for renting properties will increase, as more people will be working in an office, as international travel will also make a comeback eventually.  Whatever happens you can be rest assured that Ministry of rooms can help, whether you are looking to find a London spare room, studio flats to rent in London, rooms for rent, student accommodation or a flat for sharing on RoomforRent.rent