How are tenants and landlords reacting to the cost of living crisis?
The cost of living crisis is driving new trends in tenant behaviour and movement in the rental market, including downsizing, increased interest in flat sharing and HMOs, and moving less.
Demand from tenants is growing faster than rental stock, with three times the number of tenants inquiring than the rental properties available. This is pushing up rents, which averaged £1,227 across England in August 2022 according to Goodlord's Rental Index. These changes are, in turn, driving new trends in tenant behaviour and movement - so here's a breakdown of what those trends are.
Tenants are moving less
Due to the rapidly increasing rents, more tenants are choosing to stay put at the end of their tenancy - Propertymark research found that 73% of agents have experienced more tenants renewing their contracts within the last year.
This may be to benefit from that existing relationship with their landlord or agent, where rent increases would need to be "fair and realistic", or simply due to the lack of available properties that suit their requirements and that would normally make a move beneficial.
Tenants are downsizing
As tenant buying power has dipped, those tenants that are choosing to move are increasingly having to downsize. Research by Hamptons has shown that tenants would have been able to afford an extra bedroom two years ago for the same rent amount that they're paying today.
In the past, it would have taken six years for rents to climb enough to cover the cost of an additional bedroom, demonstrating further the accelerated growth of rent prices, inkeeping with market demand.
Under-30s are feeling the pinch the most
The BBC recently shared that four in 10 of the under 30s renting are spending more than 30% of their salary on rent - a five-year high - which is making renting "unaffordable".
However, the article highlights that this demographic of tenants are less likely to have dependents and therefore may be more willing to move to where the rents are more affordable or feel that they can afford the higher rental costs.
Older tenants are "less financially resilient"
It's not just the younger generation of renters that's feeling the effects of the cost of living. The question has been raised as to whether older renters can afford to retire - or afford to continue paying their rents.
Rental prices are likely to continue to rise throughout their retirement years and, with rents eating into monthly costs at a higher rate than mortgage payments, this may also affect the amount they're able to invest in their pension, says Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.
Tenants are showing increased interest in house sharing
Interest for rooms in shared accommodation is growing, says Platinum Property Partners, particularly those with bills included - although our data at Vouch also indicates that these are few and far between.
The property investment network says that renting a room in a professional HMO inclusive of bills can be over 40 percent cheaper than renting a one bedroom flat. It therefore saw a jump in interest in April, when the energy price cap last changed - with over 30 applications for each room available to rent within the 24 hours following the increase.
First-time buyers need more buying power
Many renters hope to eventually purchase their own property, yet, with mortgage rates rising, this is affecting the ability of tenants to get their foot on the first rung of the housing ladder.
Zoopla has found that first-time buyers will need an extra £12,000 in their salary to afford their first home - while buyers in London will need a salary increase of £35,000 compared to a year ago, to afford a property.
More landlords are selling directly to tenants
A select group of renters are benefiting from landlords offering their tenants first refusal to buy their property, often with an "element of gifted equity".
The sell off is mainly due to the expected increase in EPC rating requirements, higher interest rates on mortgages, and concern about the impact of the cost of living crisis, reports show.
Although this will further exacerbate the supply issues in the rental market, it offers tenants the chance to invest in property, while avoiding the extra costs normally involved with moving home.