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UK Rental Market Faces Supply-Demand Imbalance, Predicts 4% Rent Increase

Published by Chirag
Posted Date: November 9, 2023 , Modified Date: April 24, 2024

The UK rental market is poised for a challenging period as the Royal Institution of Chartered Surveyors (RICS) predicts a 4% rise in rents over the next year due to a supply-demand imbalance.

UK Rental Market Trends and Tenant Demand

According to the RICS UK Residential Survey for October, tenant demand has increased modestly in the three months leading up to October. However, a net balance of +33 of survey respondents reported this increase, marking the lowest reading since the second quarter of 2021 when it stood at +59.

This moderation in tenant demand coincides with a continuous decline in landlord instructions, where a net balance of -18 of survey participants noted a decrease in the same period. Although less negative than the previous quarter, this decline still signals a lack of supply in the rental market.

UK rental market

The persistent decline in landlord instructions suggests a looming shortage in the rental market. The subdued supply, coupled with ongoing demand, is anticipated to drive rental prices higher in the short and medium term.

A net balance of +53 of survey respondents predicts rental prices to increase over the next three months. While slightly lower than the record high of +61 seen in the third quarter of 2023, it underscores the trend towards higher rental costs.

Don't Forget to Check Out Our Article A Complete Guide to Tax on Rental Income UK to understand how Rental Income Works.

Projections for the Next 12 Months: Rising Rents Ahead

Over the next 12 months, rents are expected to rise by around 4% on average across the UK. This projection reflects the challenges posed by the current supply-demand dynamics in the rental market.

In addition to the rental market woes, the RICS report paints a bleak picture of the UK housing market overall. House prices continue to experience a decline, and sales activity remains weak. The survey indicator for house prices nationally recorded a net balance of -63 in October, suggesting a potential slowing down of the pace of decline.

UK rental market

Sales expectations for the next three months also remain pessimistic, with a net balance of -20, indicating little change from the low levels of activity observed throughout the month.

Challenges and Caution: RICS Report on the UK Housing Market

While the RICS report hints at a slightly less negative outlook for the housing market, it underscores the caution prevailing among both buyers and sellers. The challenges are expected to persist, with mortgage affordability remaining stretched in the near term, limiting the potential for a robust rebound in residential sales volumes.

As the market dynamics evolve, renters face the prospect of higher costs, adding to the ongoing challenges in the UK housing landscape.

Chirag
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