2022 was certainly a challenging year for the rental sector! We saw rapidly rising rents, significantly increased cost of borrowing, rising costs of living, and of course more new legislation. So, what do we think the trends are for the forthcoming year. Here are a few of our top ones to watch.
Changing tenant demographic
Renting has traditionally been seen as a stepping-stone for younger renters, prior to getting on the housing ladder. However, the market is changing. We are now seeing the tenant demographic getting older, with more tenants making a longer-term lifestyle choice to rent or being forced to rent and getting on the housing ladder later.
In the past decade the number of older renters – those aged 45 – 64, has nearly doubled. This will clearly create more demand, but landlords will need to carefully think about their product to cater for the older tenant.
Expanding build-to-rent sector and professionalisation of BTL sector
The build-to-rent (BTR) sector is gathering steam and is set to double in value by 2028. BTR properties are built for purpose, meet modern energy efficiency standards and are thus attractive to investors. Existing BTL landlords will need to consider how they modernize their portfolio to compete. BTL investors will also have to ‘professionalise’ their businesses. Those that don’t will exit.
Rising demand for energy efficient housing
The rising cost of living and in particular cost of energy is on everyone’s minds, no less so than tenants. We are already seeing evidence of differentiation in the market-place for energy efficient properties, with applicants prepared to pay a premium to secure these.
It is expected that landlords will have until 2025 to upgrade all newly rented properties to an Energy Performance Certificate (EPC) rating of C, and until 2028 to update existing rentals, according to government proposals. Landlords are advised to start investing in the renovations now, to help spread the cost in a more manageable way.
Decreasing number of new home-owners (in the short term)
Going hand in hand with the increase in older tenants, recent published data suggests that over a million potential first time buyers are putting their plans on hold due to the challenges caused by the cost-of-living crisis.
An increase in landlords creating limited companies
The majority of UK landlords now used a limited company to invest in for at least part of their portfolio. Limited personal liability is a key benefit of incorporation so it’s likely we’ll see this trend continue in 2023.
Landlords exiting the residential lettings sector and loss of rental properties
We are now seeing solid evidence, that increasing legislation is leading to landlords leaving the sector. The number of landlords looking to sell up has increased by a factor of four as a consequence of the capital gains allowance alone. We predict this trend will continue in 2023.
Alongside this, more and more residential homes are being reposed into holiday lets – some of these previously being on long term lets. It is estimated that England alone loses 29 properties per day to the holiday home sector. It’s likely that this will lead to greater competition for vacant homes in 2023.
Tenancy fraud
With rental property in increasingly short supply and access costs skyrocketing, many industry commentators have predicted a sharp rise in tenancy-related fraud. Specifically, it is predicted that there will be an increase in fraudulent tenancy applications – including falsifying references and financial data; even falsification of identity documents.
Landlords and agents not using a dedicated referencing company to complete these checks are advised to up their game considerably.
