First house prices and now rents

Published 27th of January, 2022

Aspiring first time buyers will find saving for a deposit even harder now as rents rise at record rates. In a further blow to those saving to get a foothold on the property ladder, Rightmove’s latest rental tracker revealed that average asking rents increased by 9.9%, their highest increase on record to £1,068 per calendar month outside of London. Reversing the trends witnessed as the pandemic took hold and making it harder for first-time buyers to save for a deposit.

Rents rising

Asking rents by almost 10% in 2021 outside of London, their highest increase on record.

Wales saw the biggest increase as average asking rents in s rose by 12.7% with Pontypool in Monmouthshire seeing the biggest increase, jumping 20% from £562 to £674 per calendar month.

Asking rents also bounced back in London, rising by 16.2% last year following a drop of 14% the year before. London rents are now just ahead of their pre-pandemic levels.

Why did rents fall in the first place?

Rents initially fell as the pandemic took hold as households moved out of urban centres seeking outside space and more room to work from home. It is also our assessment that those in rental accommodation were in the demographic more likely to be impacted by furlough and in jobs hit hardest by lockdown measures. Many landlords were quick to react and help their tenants by offering temporary rent reductions and those with available properties were willing to accept lower rent rather than no rent.

Why are rents now rising?

Demand factors are putting upward pressure on asking rents in our view. As the economy opens up and we make tentative steps to a more normal life renters are returning to urban centres, where we typically find most of the rental stock and this increase in demand is allowing landlords to raise prices.

We also believe that many tenants had to put off moving during the pandemic and we are seeing a period catch up in rental market activity as the normal moving patterns are being augmented by all of those who wanted to move in 2020 and 2021 but were unable to.

The rental market is therefore seeing the same demand and supply imbalances that plague the home buying and selling market.

What do rising rents mean for First Time Buyers?

Rising rents will make saving for a deposit even harder as more of their take-home pay is used to pay for the current roof over their head rather than save for their next one.

This will mean staying in rented accommodation for longer than they had planned. Rising rents will only exacerbate the problems caused by the current cost of living crisis as food prices and energy bills soar.

Compounding impact on affordability

Rising rents make it harder to save for a deposit, and this is compounded by rising food and energy prices, which impact a mortgage lenders affordability calculations. The rising cost of living reduces disposable income, which, in turn, reduces the amount of money first-time buyers have to spend on a mortgage. This reduces the size of mortgage they can secure, which means they will need a bigger deposit to fill the gap, the very deposit that has just become harder to save.

Out of reach and out of touch

The traditional methods of buying a home appear out of step with those trying to buy a home. House prices rising is one thing, but rising rental and living costs compound the issues facing the already broken housing market. Something has to change and at the present time, it seems the methods of buying a home are more likely to change than house prices are to fall. 

We believe that fractional ownership is one way to address the problem and long term fixed-rate mortgages another. 

Housing Hailey

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