Affordability and rental demand

Nationwide's latest House Price Index shows that annual UK house price growth slowed to 4.4% in November, down from 7.2% in October. Month-on-month prices dropped by 1.4%, the biggest decline in over 26 months following a drop in October of 0.9%.

This is most likely directly attributed to Truss's mini-budget and the repercussions across the markets and economy. Whilst Rishi Sunak has brought some stability into the market, it is going to take a while for the various financial institutions, global markets, and the confidence to get back to where it was before that mini-budget.

Affordability is the biggest factor impacting the housing market with stretched finances due to utility and energy costs soaring, food prices climbing and many people now starting to be impacted by the interest rates hikes.

The general view is that this position will continue into 2023 with the market being very subdued and many buyers taking a cautious approach, especially first-time buyers and homeowners in general.

However, with increased demand for existing rental stock, which is already in short supply, rents are continuing to go up as demand increases. Existing landlords now face the dilemma of either holding their ground and recognising their profits will be eaten into, with interest rate costs being offset to a degree by rental increases, or needing to draw on reserves to ride out the storm. Whilst others might have to decide that now is the time to sell.

At Vesta, we are working with many landlords that have decided the latter is their preference and many are looking to sell part or all of their property portfolios. It does mean that the volume of rental stock on the Vesta platform is increasing rapidly and much of it is very attractive to the more strategic and experienced investors that have come through previous recessions and slowdowns.

We are seeing that there is a slight difference of opinion between buyers and sellers on the value and right price, but this is not vastly different to normality and as confidence builds (or drops) the gap will close. There are discounts to be had but most vendors are not in a rush nor desperate so will hold out for the right price.

Organisations like John Lewis have recognised the opportunity the housing market has to offer, highlighted by their recent announcement that they will be spending £500m to build 1,000 rental homes to diversify their business further. With blue chip businesses like this taking a big step into the space and investing, it will likely not be long before confidence builds and the rental property market heats up again.

From a Vesta perspective now is the time to list your rental stock if you are considering selling as the holiday period tends to be when we get the most eyeballs on our listings and once budgets have been agreed early in the new year the offers will start to come in. We have already started to receive some offers from 'early bird' buyers who have agreed on strategies and budgets and who have recognised the time to buy is now before things become more competitive in Q1 2023.