2010 will see a moderate start for the rental market despite applicant levels remaining consistent. It is the low stock levels that will continue to place demands on the market; Largely due to accidental landlords returning to the sales market and bringing stock levels down.
This disproportion between supply and demand remains influential in both rental and sales markets and is likely to remain in 2010. However, as vendors realise they can achieve a competitive price for their property it may mean an overall improvement for the UK residential market.
If the sales market continues to strengthen, the impact on the rental market is likely to continue into 2010. If stock levels remain static we could see houses for rent increase prices slightly, although this will not be until Q2 and beyond when demand traditionally increases.
In the majority of 2009, a high proportion of tenants requested a rent reduction at the time of review and nearly 30% of tenancies were renewed with a 10% decrease. However by November this shifted, with of 10% of tenancies achieving rent increases. This was up 4% on the October period and the average rent increase now stands at 4.5%; a massive improvement from the start of the year.
Despite the improvement in the economy and increase within rent reviews, consumer confidence remains fragile. Therefore, it is unlikely that we will experience any significant rent rises during 2010. Furthermore, we are not yet seeing applicants increase their budgets. In fact, they are keeping their funds firmly under control and in some cases this means it can take longer for potential tenants to find suitable accommodation.
With regards to the sales market, there was a positive development during the second quarter of the year – with average house prices rebounding. This was a distinct change to the start of 2009, where house prices dropped. In fact, whilst monthly changes have been minimal, according to the Land Registry, the upward theme has been consistent since May.
Hamptons International figures suggest that this trend in the residential market was ignited with a 4.2% rise in Q2-2009. Lower interest rates, greater economic stability and a weak pound helped fuel the market in 2009. We predict this demand will continue into 2010, with buyer numbers returning to more normal levels and hence overall growth in the UK sales market of 3-5%. London properties will continue to pave the way for the sales market and remain the focal point of growth
For investors, two decisive factors for 2010 are the ease of obtaining funds, ensuring re-investment in property and also rising interest rates. A lack of funding was a problem for even the most established investors in 2009. Existing investors enjoyed low rates in 2009 and a rise in 2010 rates will have an impact on the rental market
A beneficial by-product of the recovering economy is the impact on the corporate rental market. Although companies will continue to be prudent with spending, such as reduced budgets and lower relocation packages; they will be more willing to re-locate staff and to re-invest in their organisations.
For 2010, we are predicting inconsiderable rental growth in the lettings market. Despite this, the stability of the economy will ensure a less volatile market place. Landlords have experienced a difficult 18 months, but those who have managed to remain stable will be rewarded in 2010 with an increasingly consistent market.
With regards to the residential market, Hamptons International’s biggest concerns for 2010 are the anticipated increase in interest rates, taxation later in the year and also the impact of political uncertainty around the election. These decisions are likely to hinder progress in the market.
