Rental Market Outlook for 2012

publication date: Jan 10, 2012
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

Rental Market Outlook for 2012

The outlook for buy to let investors and existing landlords for 2012 is certainly looking bright. For new or moving tenants however the picture isn't quite so great. They are likely to see a shortage of properties to choose from and continued rent rises in 2012. Having said that, many landlords who have existing tenants who pay their rent on time look after the property and treat it as their home will prefer to maintain the rent rather than risk raising it to cover inflation and end up losing a good tenant. So for those already renting, as long as you are a good quality tenant, 2012 could be a good year.

To better understand the market into the future, surveys which give an indication of current demand and supply for properties as well as landlord sentiment surveys can be helpful. These surveys include the RICS Residential Lettings Survey, ARLA's quarterly report, Paragon Mortgages landlord research and anecdotal information from the rental indices in our Current Rental Market Report.

According to the Royal Institution of Chartered Surveyors' Residential Lettings Survey, "rents continue to rise and are expected to increase further in the near term". Research from their estate and lettings agents found the number of properties to let is increasing, mainly from accidental landlords who can't sell their homes. Despite this increase in properties to let, unlike in 2008 when the market was tipped into oversupply, this time, demand appears to continue to increase at a faster rate. This is due to existing tenants staying longer in rental accommodation so any new stock onto the market is quickly snapped up by the increasing number of tenants.

The ARLA quarterly survey also supports the suggestion that supply in 2012 may increase as "the proportion of ARLA members who think landlords are currently buying properties has increased from 16% to 19% over the last three months." In contrast "The proportion of ARLA members who think landlords are currently selling, is down from 14% to 10%."

Paragon Mortgages have already found their landlords are expanding their average portfolio size from 12 to 13 properties in the third quarter of 2011. During their landlord research, they found "More than a fifth (22%) of the landlords that took part in the survey said that they expect to purchase additional properties in the next 12 months, and just 8% are considering reducing their stock."

So from a stock perspective, the number of properties available for rent is likely to rise both from accidental landlords who don't want to or can't sell their homes and from investor landlords taking advantage of potentially rock bottom property prices in 2012.

From the demand side, more and more people are expected to rent before they consider settling down and buying a home. Some surveys such as Oxford Economics, suggest that owner occupation has peaked in England, believing "the proportion of people living in owner occupied homes will fall from a peak of 72.5% in 2001 to 63.8% in 2021."

The private rental sector is likely to be the main beneficiary of the decline in home ownership as it is highly unlikely there will be a net growth in the number of homes available through the social sector. With the uncertain economic conditions for 2012, further falls in the real value of property (net of inflation)*, and while rents remain stable or increase slightly throughout the year, our view of renting will change.

Many will start to see the growth of the rental sector as a good thing from an economic perspective as it allows increased mobility and flexibility during uncertain times, especially those who haven't yet settled down career or family wise. Why would anyone waste money on owning and maintaining a property which could fall in value when you can rent a great property in a good location from a landlord who foots the maintenance bill?

* Bar Central London and other wealthy areas across the UK

ALSO READ Rental Market Update and Current Rental Market Performance


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