UK property rental growing at the expense of sales market

Countrywide, the U.K.’s largest estate agency chain, has today issued a report suggesting that the number of properties rented in the UK will outstrip the number of property sales in 2017. This would be a phenomenal turnaround in the UK market which has predominantly been a sales lead market until recently. There would appear to be a number of reasons why the number of rental properties may outstrip the number of sales which we will cover below.

Brexit uncertainty

Time and time again the subject of Brexit rears its ugly head as a reason for the slowdown in UK property sales. While there is no doubt that uncertainty does breed uncertainty the fact remains that there is still underlying demand for the UK property market. Indeed, after the fall in the value of sterling, UK property has never looked cheaper to overseas buyers. Are you buying into the Brexit uncertainty as a reason for falling house sales in the UK?

Supply issues

Reduced supply of housing to the UK property market has been an issue for decades and with some people reluctant to sell during what they see as a short-term slowdown in light of Brexit is this feeding the problem? Time and time again governments have promised to build new houses in great numbers and time and time again they have failed to deliver. There may be some truth in the theory that some people are postponing house purchases and choosing to rent in light of Brexit but there are other issues to take into consideration.

Increased deposits

In light of the US mortgage crisis, which led to a collapse in the worldwide economy back in 2008, it was no surprise to see governments working on more conservative mortgage deposit arrangements. As a consequence, more and more people are now struggling to put together a mortgage deposit for their dream property purchase instead often being forced to look at the rental market in the short term. The problem here is that the more people who rent in the UK the greater the demand from the buy to let sector which will reduce supply further and push house prices upwards.

Minimal wage inflation

Even though the UK economy is one of the strongest in Europe, and indeed the world, at this stage of the economic recovery we are experiencing minimal wage inflation. Despite the fact that unemployment has remained relatively low in recent times there is surprisingly little upwards pressure on wages. When you also consider the upward trend in house prices of late the affordability factor has been widening for many people, pricing them out of markets.

Recent tax changes

Earlier this year the government announced an array of changes to the taxation system with many surrounding the buy to let market. As a consequence we saw a number of buy to let investors pushing through with their investment plans prior to the stamp duty increase. This led to a higher than average number of property sales in the early part of the year – providing more rental capacity and also reducing supply for those looking to acquire real estate.

Conclusion

In light of what is happening with the UK economy at this moment in time it is perhaps no surprise to see an increase in rental numbers and the possibility that the number of properties rented in 2017 could outstrip the number of properties sold. This is unlikely to be a long-term phenomenon but then again if governments fail to deliver on promised newbuilds could house prices be squeezed higher due to a continued imbalance in the supply/demand ratio?