The national lettings market continued its post-pandemic recovery in Q3, apart from in London where high supply and low demand continued to put downward pressure on rents.
Figure 1 shows sentiment improving across three metrics from the RICS survey. In August ‘Tenant Demand’ hit its highest ever level since the monthly series started in 2012, +49, before falling back slightly. The ONS index showed rents continuing to grow at around 1.5% annually in September (note that this data covers all rents paid rather than new listings so can be slow to respond to changes).
Other data sources also saw very strong rental demand outside the capital. Rightmove’s Q3 2020 Rental Price Tracker reported an all-time high for asking rents outside London (£964pm), with annual growth of 2.4%. The report notes that this appears to be driven by a combination of pent-up lockdown demand and tenants looking for homes with home-working and garden space.
Homelet’s September index reported annual growth of 2.1% nationally, rising to 3.9% excluding London. Their report noted that rental supply was being constrained by some landlords taking advantage of a strong sales market and exiting the sector, while demand was kept high with some tenants unable to buy due to the falling availability of low deposit (i.e. first-time buyer) mortgages.
While the sales market has proved resilient through the pandemic so far, and the rental market indicators above are not yet showing many warning signs, the immediate impact of the economic damage is more likely to be felt by tenants. In general, renters are younger, lower earners with less savings, therefore more vulnerable to financial shocks.
With evictions effectively banned since March, the official data on landlord possessions is not yet reflecting any problems; Figure 2 shows that activity in terms of claims issued dropped to around 3,000 in Q2, compared to 25-30,000 in recent quarters.
However, it is likely that many tenants have either lost their jobs or seen reduced incomes over the past six months, potentially building up arrears. A survey by Citizens Advice estimated that over a million households could be behind on their rent. Specific financial support for renters from the government has been limited, and on 20th September the stay on possession proceedings was lifted (after a series of extensions).
An instant increase in eviction activity is unlikely, as capacity in the court system is very limited. Evictions are also effectively banned again in areas under Tier 2 or 3 local lockdowns. For new proceedings, the notice period for no-fault s21 evictions has been increased from two months to six. The possession data above may therefore take time to reflect the true situation.
Unemployment data is a potential leading indicator of stress in the rental market, and the official data at national level has started to show an increase (now at 4.5%, vs. 3.9% last quarter). The claimant count data, which “seeks to measure the number of people claiming benefit principally for the reason of being unemployed” (as well as covering some low earners in employment) provides a more timely indicator of the scale of employment issues.
As shown in Figure 3, this metric has more than doubled in the past six months, reaching over 2.7m in September. The local variation in both the annual change and the level of claims is shown in the maps in Figure 4. The local authorities seeing the largest increases include some in the London commuter belt coming off a low base, with higher percentage levels in major cities and coastal areas. These issues are likely to feed into rental demand and pricing, but the size and speed of the impact remains to be seen.
FIGURE 4 - Claimant Count Maps
Map 1: Annual increase: Sep-20 vs. Sep-19 and; Map 2: Claims as % of people aged 16-64