Rents recover more slowly than sales

Following the spring lockdown, the lettings market started to bounce back after two months of inactivity. But according to the latest research from Hamptons International, rentals are recovering more slowly than the sales market. To the disappointment of lettings agents and landlords, the predicted V-shaped rentals recovery has turned out to be U-shaped instead. In contrast, the sales market continues to perform strongly.

Unsurprisingly there has been a leap in the number of first-time buyers – although not as big a surge as some commentators predicted earlier in the year. Potential buyers who already had deposits saved or who avoided being furloughed and managed to save during the pandemic, have had the additional bonus of the Chancellor’s stamp duty holiday to encourage them to buy their first home. But the rental market has not had the same advantages. Hamptons' research points to the fact that job insecurity in the sectors that employ large numbers of young people has meant potential renters delaying a move out of the family home and into rented accommodation. And at the same time, the number of homes to let has fallen. The reluctance of landlords to invest is reducing supply, which Hamptons predicts may put a floor under rents at some point in the future.

As the research points out, the outlook for the rental market is wholly dependent on whether tenants’ earnings start to pick up - and how many lose their jobs. Rental growth is expected to lag behind house price inflation until at least 2022, "with rents falling this year and next”. In London, Hamptons forecasts a 3% drop in rents this year and a 1% fall in 2021. A depressing prospect for hard-hit landlords wondering if they will be able to meet their own financial commitments over the next few months.

However, there is a glimmer of hope that the market should stabilise towards the end of 2021. In the meantime, like other sectors of the economy, growth in the rental market is likely to hinge on the easing of travel restrictions and the delivery of a vaccine to stop the pandemic in its tracks. In the meantime, landlords have difficult decisions to make around the viability of their properties, both in the capital and elsewhere.