Private rent and house prices, UK: May 2024

Landlords, pressured with taxation, regulation and higher interest rates, are leaving the sector in their droves, which is reducing the available stock for tenants and driving up rents. As a result, I'm slightly surprised by this data. On the sales front, there is definitely more activity and things are starting to pick up but we need that first base rate cut from Threadneedle Street to really get things going. Sadly we may have to wait a little longer after this morning's inflation data.

Though rents have come down slightly according to this data, they're still painfully high for many tenants. Landlords are finding it difficult to achieve profitability and the reduction in rental properties is tightening the rental market, increasing competition and making conditions extremely challenging for tenants. Both the sales and lettings market will remain under pressure until mortgage rates start to come down. Though house prices are up compared to the previous month, the property market's pulse remains closely tied to the rhythm of mortgage rates. When mortgage rates begin to fall materially, that could breathe life into the stagnant sales market. But inflation coming in slightly higher than expected may just have delayed things on that front. Despite increased interest from first-time buyers and home movers, high costs and limited housing stock are hindering their ability to purchase, while home movers are struggling to sell their existing properties.

I'm surprised that rents have come down. The estate agents I speak to are all seeing an increase in available property, largely due to landlords calling time on their property portfolios. This reduction in rental stock is piling further pressure on tenants and sending rents spiralling upwards. Not knowing how long you stand to remain in your home really is also an awful stress on families beholden to the motives of private landlords, who themselves are feeling pain. It’s in this situation that the private landlord gets to understand the risk of investing directly in bricks and mortar. Many now realise it isn’t perhaps the golden goose they thought it was. They are at risk, just as any homeowner is, of price and interest rate fluctuations, but they have the added default risk from tenants. So with net yields around the 4-6% mark, is it any wonder some are seeking the shelter of deposit based accounts to achieve similar returns without the relentless downsides to landlordism?

The property market overall is steady, with pent-up demand building and growing levels of stock for sale. People have recalibrated to the new rate environment and that's likely reflected in the pick-up in average annual house prices. The property market is ready to explode when the Bank of England lights the fuse but the latest set of inflation data may mean it keeps the match in its box for now. Despite inflation coming in higher than expected, the base rate is still likely to be cut in 2024 and that will be music to the ears of homeowners, landlords and tenants alike.

Between March and May, the property market usually springs into action, but this year it has been much quieter. First-time buyers are stepping out of the shadows and enquiries have increased but it is clear that many people are holding off to see what happens with mortgage rates. As borrowers adapt and accept the 'new norm' of higher interest rates, activity should increase. But we desperately need a catalyst to inject some confidence and excitement into the industry, and a base rate reduction would do this. Sadly, the latest inflation data means we may have to wait a little longer for that first cut. Being a landlord has become very unattractive, as interest rates have pushed mortgage payments up and they are passing these costs onto tenants. We're certainly not seeing any let-up in rents on the ground.

Unlike Katniss in The Hunger Games, the odds are not in my favour. As a London HMO landlord, my buy-to-let mortgage is up for renegotiation. With harsh interest rates, especially for an HMO, it's no longer profitable. Time to sell up.