The landlord-tenant relationship, how do we ease tensions and where are there opportunities?

In the current market, both landlords and tenants are struggling. Costs continue to rise, while hiked rates are making everything more expensive. As a result, we’ve seen forced, dramatic reactions.

Many landlords and buy-to-let investors have deemed the market too expensive and difficult to deal with. The number of landlords selling up rose by nearly 13% between July and October 2022.

The Bank of England also warned this is being exacerbated by a difficult tax and regulatory environment. Those who remain have had to pass much of these costs onto their tenants.

On average, English tenants are paying 23.5% of their net earnings on rent, according to Ocasa. In England’s least affordable hotspots, this rises to 43%. In major cities such as London, Manchester, or Liverpool, this percentage could easily be higher.

With both sides facing difficulty, it’s understandable that the relationship between the two could become fraught. To understand how this dynamic is coping, Market Financial Solutions (MFS) surveyed a nationally representative sample of 2,000 UK adults that were either tenants, or landlords with at least one buy-to-let property.

The survey explored sentiment towards prices in the private rental sector, the prospect of further regulation, and where there may be scope for change.

Regulations at the crossroads

The results showed the majority of tenants have seen their bills rise, and want to see change. Just over half (58%) said their rent had increased in 2022. What’s more 49% were worried they would not be able to afford their rent in 2023, while 77% believe more needs to be done to control rental prices in the UK.

But, the same data revealed many landlords are already doing what they can to support their tenants. Over a third (35%) froze rents in 2022 due to the impact of the cost-of-living crisis. Meanwhile, 56% said they would allow tenants flexibility on rental payments.

And while 52% of landlords raised rents in 2022, 48% were forced to do so because of rising interest rates and mortgage repayments. It can be difficult to strike a balance. Where conflict may arise as a result of these problems is within the regulation.

Unsurprisingly, most landlords (65%) believe they have been unfairly penalised and targeted by the government over the past decade. Nearly two-thirds (63%) thought too much regulation had been introduced in the private rental sector.

But, tenants feel there needs to be more intervention. Our results showed the vast majority thought the government was right to ban no-fault evictions (62%), that the rental market needs tighter regulations to protect tenants (73%), and tenants should be able to claim rent back from landlords if they’ve been made to live in poor quality accommodation (78%).

Both sides of the market may end up at a stalemate on regulation. But that doesn’t mean there aren’t opportunities out there for property investors. Especially for those looking for new markets, with long-term potential.

There are investment opportunities, we just need supply to meet demand

In many areas, tenants are very willing to look for alternative arrangements if they have a poor relationship with their current landlord or letting agent. This is particularly true in London (51%), the West Midlands (39%), and the North East (32%).

There may be a steady supply of tenants in these locations who are at least open to better options. New entrants could take advantage.

Also, across the UK, most tenants want to see more multi-year/long-term lets in the market. Especially in locations such as London (72%) the East of England (74%), and the North East (75%).

With so much uncertainty in the economy, buy-to-let investors may want to lock-in long-term tenants where they can. The coming months may present an opportunity for investors too, with 40% of landlords planning to sell one or more of their properties in 2023.

Also, beyond geographical opportunities, there is also rising demand for specific property types. Across England and Wales, apartment price growth is outpacing that of houses, according to analysis from Fine & Country UK.

Meanwhile, the Q4 2022 BVA BDRC Landlord Panel research report showed HMO properties offered landlords the strongest yields (6.4%) in 2022, with multi-unit blocks just behind (6.2%).

Regardless of where, or how landlords target the market, action is needed. The UK is facing a supply crisis in the private rental market, says the National Residential Landlords’ Association. It revealed that 65% of buy-to-let owners across England and Wales saw rising demand in the final quarter of 2022.

Yet, according to TwentyEA, there was only 199,725 properties available in the lettings stock in December 2022. In December 2019, there were 328,412. This lack of supply is having obvious effects. Average monthly asking rents in Britain hit a record high of £1,172 at the end of last year, according to Rightmove. This rose to £2,480 in London.

The market is desperate for supply. Renters want, need even, sustainable tenancies and decent places to live. If property investors meet these demands, we could enjoy much more peaceful relationships between the two.