UK rental review Q1 2021
The UK lettings market started 2021 in robust fashion, with sentiment in Q1 pointing towards higher demand and price growth. There is, however, growing evidence of a potentially significant problem with arrears in the private rented sector.
RICS Survey data in Figure 1 shows ‘Tenant Demand’ at +36 in March, compared to +15 in December. By contrast, ‘Landlord Instructions’ have been falling for over six months now, reaching -25 in March (vs. -12 in December) and suggesting a potential mismatch in supply and demand. Consequently, ‘Rent Expectations’ hit its highest mark (since the dataset began in 2013) of +47. The ONS index of rents paid recorded growth of 1.2%, in line with recent trends, but this measures all rents paid rather than new lettings so does not react quickly to market changes.
Figure 1: Rental growth vs. RICS rental indicators
Source: RICS Housing Market Survey (Mar 2021), ONS IPHRP (GB). Note: RICS data lagged 3 months.
Rightmove’s Q1 2021 Rental Price Tracker reported annual rental growth of 4.2% outside London, with asking rents reaching a record high of £982pcm. Strong demand and low supply is evident across many areas outside the capital, with average time to let at record low levels nationally – 23 days in Q1 – and in most regions (South West, South East, East, East and West Midlands, Yorks and Humber, and Wales).
Homelet’s March index reported annual growth of 3.4% nationally, rising to 6.8% excluding London. This is based on achieved rents for new tenancies. Their accompanying commentary suggests these increases, well above the current rate of inflation, are driven by a lack of stock and could increase further if policy changes discouraging landlords continue.
A summary of the latest regional rental data is shown in the table below.
Table 1: Regional Rental Data
Source: Homelet Index (actual achieved rents), Rightmove Rental Trends Tracker (asking rents)
Arrears and Possessions
There is growing evidence of a potentially significant problem with arrears in the private rented sector, with results from Wave 2 of the English Housing Survey’s Household Resilience Study, carried out in November-December 2020, showing over 350,000 households in arrears – equivalent to 9% of all PRS households. A further 278,000 households reported that they were ‘very’ or ‘fairly’ likely to fall into arrears in the next three months.
The eviction ban remains in place until the end of May, barring cases of significant rent arrears or antisocial behaviour. Figure 2 is a chart of claims and repossessions up to Q4 2020, showing a slight uptick but activity still well below usual levels. The combination of the excess cases generated by the impact of the pandemic on renters’ finances, plus the backlog now building up, means there is a risk the courts will not be able to cope with the volumes once the ban is lifted.
Figure 2: Landlord possessions, quarterly