Mainstream rentals

In contrast to the prime markets of London, the RICS reports a limited amount of new stock coming to the mainstream rental market at a national level.

However, this sits against the context of relatively subdued levels of growing tenant demand – particularly when judged against the levels seen since the resurgence in private renting.

With UK housing transactions in the three months to the end of May rising by 19% year on year according to figures from HMRC and the CML reporting a corresponding 26% increase in mortgaged first time buyers, this should come as little surprise.

It would suggest that some of the pressures that have caused levels 
of homeownership among the under 35s to fall by 41% since 2001 to have eased a little, having previously been accentuated by the constraints on mortgage finance in the post credit crunch environment.

In this respect, much has been made of impact of Help to Buy in the media. In the first quarter of the year, roughly 6,500 equity loans and 6,000 mortgage guarantees were completed under this scheme, the vast majority applying to first time buyers.

These numbers are not significant in a wider housing market that saw 265,000 transactions in the same period, but they do have more significance to the numbers of first time buyers and therefore the growth of the private rented sector (that has grown by an average of 233,000 additional households per annum between 2010 and 2012).

Yet they are certainly not the only factor affecting a slowing in the growth of tenant demand. Nor are they likely to reverse falls in mortgaged owner occupation that has underpinned the growth in private renting.

The growth in first time buyers crucially includes a number of households who are returning to owner-occupation now that the housing market has become more fluid. Accidental tenants, as much as accidental landlords, are on the decline and in time will be regarded as a temporary market distortion.

While that is tempering tenant demand currently, the Mortgage Market Review is likely to have a much longer term impact on the availability of mortgage finance. In turn, this is likely continue to drive tenant demand.

Furthermore, any intervention by the Bank of England to control housing market risks through further intervention in the mortgage market could have similar effect.

Mortgage deposits are likely to remain high relative to incomes, with high loan to value or loan to income lending under scrutiny. With continued medium and long term drivers for growth in the private rented sector and limits on supply 
to meet it, rents will continue to rise.

But at times, much like now, they get pushed up against constraints of affordability. This limits the short term prospects for mainstream rental growth, which are currently largely dependent on income growth and the pace of economic recovery.

Taken from
Spotlight: Prime Rental Market - July 2014