2023 Rental Market Forecast: Assessing the Impact of Economic Pressures on the UK.
2023 Rental Market Forecast: Assessing the Impact of Economic Pressures on the UK.
The impact of recent events on the property market has been widely reported, but what’s likely to happen over the next few months? What effects will economic pressures have on the rental market?
While a crystal ball might be handy when asking questions like this, it’s a better idea to assess the situation using the facts we know and the views of leading economic forecasters. And although the fallout from Covid is still impacting the economy, and we saw market turbulence in the Autumn, it’s a good idea to keep in mind one thing that hasn’t changed and isn’t likely to change any time soon: the UK has a housing shortage and people still need homes.
Long-term factors driving demand
The factors that are likely to shape the rental market over the next 12 months are not short-term. Nor are they isolated from the owner-occupied sector. They arise from the imbalance between supply and demand.
In some parts of the country this is of particular concern. Many urban areas are seeing high levels of demand for rental properties, and, despite cost of living pressures, landlords are easily able to command higher rents. A second trend is that people are renting for longer. With property ownership not an option for many, demand for quality, affordable rental homes will continue to increase.
The cost of borrowing
The most significant recent change is the increased cost of borrowing. Interest rates have shifted from very low figures as the Bank of England attempts to curb inflation. While rates are still relatively low when compared to figures seen in previous decades, the effect of these changes is greater. The high cost of home ownership means relatively small changes in borrowing rates have a big impact on the affordability of mortgage repayments. Household incomes are being squeezed and many hoping to take their first steps onto the property ladder are having to rethink.
Reports of falling house prices are already widespread, but rather than any drastic crash, it seems the market is simply settling back down to where it might have been without the impact of a pandemic. Indeed, many economists are predicting that the UK economy will grow slightly in 2023. A long-term recession may not be on the cards. And those in the rental business may well find that the caution caused by worries about interest rates, works in their favour, boosting demand as home buyers wait to see what’s going to happen.
High demand and a volatile market
Even though demand is high – and increasing – 2023 could well be a very challenging year. With higher rents, higher interest rates, and more expensive mortgages, the market is likely to be volatile, and with cost of living pressures, more tenants could be in arrears.
Whatever 2023 has in store, as a letting agent, it is important to stay up to date with the latest economic developments. While you may not be able to impact economic trends, it’s important not to be passive. Always aim to manage your business as effectively and efficiently as possible, and you’ll be in a strong position to respond to changing market conditions.
