Supply v Demand | MIH Property Management

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The London Rental Market

Summer 2023, and the London property rental market finds itself in a state of flux. This is the result of a combination of factors that have culminated in the demand for rental property far outstripping supply at present.

RISING INTEREST RATES

Firstly, the rise in interest rates has unbalanced many property portfolios with mortgages becoming too expensive to maintain under the terms that they were entered into. The current economic climate has demanded a change of perspective – and expectations. Loans need to be reviewed and refinanced, and repayment terms and times addressed. And, quite frankly, some clever thinking is required to weather the economic climate. It looks unlikely to change in the short term, so forecasters must look and think further ahead to find the answers.

REDUCTION IN AVAILABLE RENTAL STOCK

As landlords take the path of least resistance and property is sold off, so the available rental stock has been shrinking. This scarcity has triggered a trend of early contract renewals alongside a commitment to longer rental terms, by tenants keen to secure their home for the immediate future. This gives some security to both property owners and tenants. However, it leaves a shortfall of suitable homes for would be London dwellers who are having to work hard to find a place to live.

INCREASE IN RENTAL PRICES

Besides the move to retain existing rental properties, rental prices have also been rising steadily.

Private rental prices paid by tenants in the UK rose by 5.1% in the 12 months to June 2023

This has no doubt put pressure on tenants but has also helped landlords to meet the increase in interest rates, somewhat addressing the financial shortfall. In the meantime, prospective tenants are finding available property snapped up before they can even put a bid in, with many having to resort to living in less desirable areas or choosing to live further outside London and commuting. There is also a willingness to accept lesser quality or less ideal property, such as smaller spaces, shared facilities and HMO’s for the younger audience.

EXCESS RENTAL STOCK AT THE TOP END

Meanwhile at the top end of the London market there is a glut of property where owners are unable to sell. Economic uncertainty and rising interest rates have led to potential buyers delaying making a purchase whilst they wait for things to settle down. This has resulted in these high value properties finding their way to the rental market. With them, naturally, comes a high rental price that is beyond the average budget, but applicable nevertheless to a particular sector of clientele. The strategy here is to tap into that marketplace and to take the longer range view in order to ride out the current situation, whilst protecting the value of your asset.

SUPPLY MUST MEET DEMAND

It is far from ideal, but nature abhors a vacuum. There is a huge demand for rental property and one way or another that demand must and will be met. For the moment as Landlords relinquish portfolios the landscape is shifting.

Some landlords, particularly well-financed ones, could see a window of opportunity to snap up properties at potentially reduced prices.

Without a doubt, as time passes, the market will find its way and a new breed of property owner and landlord will spring up. An example of a creative approach to meeting the demand for homes is the conversion of former offices, shops and non-residential property, into residential property. This kind of smart thinking can turn lower cost investments into higher value returns, while also fulfilling government demand to increase the number of homes across London and the UK.

DRAW ON OUR EXPERIENCE

MIH work across all sectors of the market from prestige property with bespoke requirements, to block management with variable needs. Whatever your current position as a landlord or property owner, speak to MIH about how to leverage your investments and work smarter until the market is in the ascent again. Collectively we have many years of experience across all aspects of property management and can offer some words of wisdom.