What a 2022-23 Recession Will Mean For UK Renters

The Index of Private Housing Rent Prices (IPHRP) announced recently, shows a three percent surge in private rental prices in the UK. This calculation takes into account the 12 months ending June 2022. According to the Office for National Statistics, this is the largest annual growth rate since 2016. Last year, there was a 2.9 percent increase in private rental prices in England. It was lower at 1.9 percent in Wales and 3.5 percent in Scotland in the past year. Rent hike was the lowest at 1.7 percent in London and the highest at 4.3 percent in the East Midlands.

Supply Shortage Is a Long-Standing Problem

UK leading property experts believe the rent spike is due to a prevailing supply shortage. Our Ian Barber – Head of UK BTR & Lettings confirms that in Ringley’s experience that the lack of available homes is leading to bidding wars and resulting in a surge in rents and deposits. However, rising interest rates and a potential recession may slow down the pace of price growth over the following months. With inflation shooting up, rising interest rates, and a potential recession, demand for rented homes is likely to be severely impacted. Lenders are understandably becoming ever more cautious, restricting how much people can borrow.

Factors Likely To Slow Down The Pace of Rental Growth

Experts predict rents will continue to rise in 2022/23 but at a slower pace. Household incomes have already been hit by the cost-of-living crisis and are expected to worsen. The recession will make things worse for renters looking for homes in good locations. The localised nature market means rent will rise steeply where demand is at its highest. Rents are unlikely to increase uniformly across the country. In places where the demand is high, rents will increase at a higher rate compared to areas where the demand for rented homes is relatively low. The increase in post-pandemic pent-up rental demand is expected to normalise soon. During the pandemic, most renters preferred to stay with the existing arrangement because of the prevailing uncertainty.

This will help slow down rental growth levels. Further rental growth is also likely to be affected by affordability considerations. Tenants are likely to stay put rather than move to a property where they have to pay a higher rent. In London, Scotland, and South West, where stock levels of available homes are more constrained, rents will likely continue surging northwards. The core issue of the UK rental market is that tenant demand is consistently high, but there are not enough homes available to keep pace. It will take some time to close that gap and see rents fall. If a recession hits the UK, the time for closing the demand-supply gap will get extended inestimably. Successive governments have been struggling to build more houses and keep pace with the population growth.

Other Factors Affecting Rental Market

Apart from the potential recession, other factors are also responsible for the current state of the UK home rental market. People not wanting to move due to the uncertain times of the pandemic are now looking for new homes. This had led to a demand surge. A few people are still clinging to their existing rental properties. They do not want to enter the highly competitive and uncertain rental market. The skyrocketing energy costs are also forcing property owners to hike rentals. They say they have no choice but to demand more from their tenants as the cost-of-living crisis is affecting their personal budgets.