The property market has always been a rollercoaster ride, and recent statistics show that demand for rental homes has jumped as first-time buyers are leaving the market due to sky-high mortgage rates. According to Rightmove, a property website, the number of people enquiring about rental properties was 23% higher in October than during the same month last year.
Many first-time buyers are considering renting as a short-term alternative to buying, however, they have few options. The report also warns that the number of small rental homes – studios, one and two bed properties – on the market was 4% down last month compared to the previous year.
Letting agents are also noticing this trend, and report receiving 36 enquiries per property on average, with competition between tenants at a record high this year. Another survey states that 42% of aspiring first-time buyers already have their total deposit saved, indicating that they are waiting to see if mortgage rates will drop.
The recent increase in demand for rental properties, coupled with the decrease in supply, means that tenants have fewer options and will face more competition when searching for a place to rent.
Mortgage rates have played a big role in the shift of demand towards rental properties. Rates have spiked following the mini-Budget in September, with the average two-year fixed deal climbing from 4.74% to 6.65% between September 23 and October 20, according to Moneyfacts, an analyst. However, since Jeremy Hunt replaced Kwasi Kwarteng as Chancellor and intervened to calm markets, mortgage rates have edged down.
The lifetime cost of taking out a mortgage on a first home is now the highest it has been at any point since 1974, according to the Resolution Foundation, a think tank. Additionally, forecasts for house price falls also raise the risk of negative equity, when a buyer’s home is worth less than they borrowed to pay for it. If they have to sell, they will owe the difference to the bank.
In summary, the recent trend of demand for rental properties jumping as first-time buyers leaving the market due to sky-high mortgage rates. Renters will face more competition and have fewer options. However, many first-time buyers are still saving for their deposit and waiting for mortgage rates to drop or stabilisation. Even if this happens, with house price forecasts falling, the risk of negative equity may persist.
