Rents to continue to rise, as supply of new properties available to let declines again
The most striking feature of the July 2018 survey is the continued reduction of new property being put on the market in the lettings sector with nine per cent more respondents seeing a fall rather than rise in new landlord instructions. This is the eighth consecutive quarter in which this indicator has recorded a negative number.
Survey in brief
Lettings data continues to underline the impact of tax changes on supply of property to rent. Sales market remains broadly flat at the national level.
Impact policy changes have on the market
This pattern reflects the shift in the buy to let market in the wake of tax changes which are still in the process of being implemented, as smaller scale landlords exit the sector. Significantly, the drop in instructions is evident in virtually all parts of the country to a greater or lesser extent.
While the supply of fresh rental stock to the market is increasingly constrained, the tenant demand indicator remains resilient. The upward momentum appears to have slowed, but the number of tenants looking for a new home remains in positive territory at a headline level.
One consequence of this imbalance is that expectations for rental growth, and rising rents for consumers, appear to be strengthening again. Over the next 12 months, rents are projected to increase by a little short of two per cent nationally, but the shortfall in supply over the medium term is expected to force a cumulative rise of around 15 per cent (based on three month average of responses) by the middle of 2023. East Anglia and the south-west are viewed as likely to see the sharpest growth over the period.
Turning to the sales market, the underlying message is little different from that reported in June. The headline price balance edged up from three per cent to four per cent in July.
Meanwhile, the newly agreed sales net balance remained close to zero for the fourth month in succession. As highlighted previously, the feedback to the RICS survey continues to suggest a stronger market in Scotland, Northern Ireland, much of the north of England, the Midlands and Wales (prices and activity). Meanwhile, the London price balance was little changed over the month (-40 per cent) with the results for both the south-east and East Anglia consistent with very modest price declines.
It is perhaps no surprise that as speculation built ahead of the August Bank of England meeting that the headline new buyer inquiries series was little changed over the month with a net balance of two per cent. The new instructions measure also signalled a flat picture, following two months of very modest increases. The June survey signalled some doubts as to whether the pipeline of new supply would continue to improve in the light of the feedback on appraisals being conducted by valuers.
This was upheld as the appraisal balance in July was once again firmly negative. As a result, the judgement is that the average inventory on the books of estate agents is likely to remain close to historic lows. The impact of this is visible in both the 12-month sales and price expectations net balances. While the former recorded a reading of -7 per cent , its most negative number since October last year, the latter was much firmer at +25 per cent .