Trends for 2022 – what can we expect for the lettings market?

Trends for 2022 – what can we expect for the lettings market?

14 December 2021

It’s notoriously difficult to predict precisely what will happen with the lettings market in the future, given its fast-moving and fast-changing nature.

This unpredictability has become exasperated since Covid, with the pandemic making projections for the future even trickier.

However, some expected general trends will emerge or continue in 2022, which we look at below.

A greener property market

As the government seeks to reach its net-zero targets and there are many moves towards making the rental market more sustainable, it seems inevitable that the pressure will continue to grow on letting agencies and landlords to make themselves greener.

As sustainability and climate issues dominate the news agenda, don’t be surprised to see more new announcements designed to drive the greening of housing stock next year.

Landlords will continue to be encouraged to make their homes more energy-efficient, whether through the £5,000 grant to install air source pumps or other incentives as yet unannounced.

Green mortgages from lenders are likely to grow in popularity and scope while letting agencies throughout the UK are likely to continue their moves towards becoming greener – whether that be in shifting towards electric cars or lowering their carbon emissions in other ways.

Several agencies have already committed to going carbon neutral, with many more expected to follow in the coming year.

A narrowing of the supply and demand gap

One of the rental market features has been a massive gulf throughout the pandemic between the soaring demand for properties and supply struggling to keep up.

While this means landlords are likely to achieve higher rents, it’s not sustainable in the long term, and correction is expected to occur at some point. It seems inevitable that demand will continue to outstrip supply by quite some margin for the foreseeable future. However, 2022 could be the start of a shift back towards a more balanced market as more people (savings boosted by Covid and with the help of government incentives and low borrowing costs) seek to purchase a home, lessening demand slightly.

Meanwhile, there’s the potential for more landlords to enter the market – drawn by strong yields and the stability of bricks and mortar as an asset class – which will likely increase supply levels across the country.

The continued growth of Build to Rent (BTR)

BTR has grown significantly, with the market offering a different renting experience for tenants. Based on this growing trend, agents have opportunities to diversify revenues in a post-fees ban and post-Covid world. At the same time, traditional landlords could consider some of its more bespoke elements – no deposits, pet-friendly, free WiFi, quality furnishings – to ensure they can stand up against the competition.

The market is still very niche – making up around 5% of the total PRS – but this is growing fast. According to the quarterly BTR map produced by the British Property Federation, as of Q3 2021, thereare 205,525 BTR homes in the UK. Of these, 63,950 are complete, 42,032 are under construction, and  99,543 are in planning.

The suburban BTR market, in particular, is expected to grow in 2022, with the market as a whole expected to have witnessed record levels of investment this year. What’s more, despite Covid, BTR has proven its resilience, with planning permissions increasing by more than half (52%) since the pandemic began.

While many will continue to be sceptical about the long-term threat of BTR to the traditional buy-to-let model, we only need to look at the US and parts of Europe for evidence that this type of renting can prove highly popular.

It will be interesting to see just how much more these markets can grow – or whether they’ve already reached their natural ceiling. And 2022, the first year since Covid where there is likely to be a bit more stability and ability to forward plan, could be an acid test for how big these asset classes can go.

International interest will grow

The bounce-back in international students attending UK establishments in person has already begun since the world opened up again to a more significant degree. This should continue next year – although it will depend on circumstances and how impactful the new Omicron variant is.

Continuing low interest rates shouldn’t change drastically next year even if the Bank of England increases the base rate again. This should also keep international investors interested in the UK, and not just in London.

Institutional investors may be looking towards BTR, purpose-built student accommodation and co-living, while smaller overseas investors may start to look outside of London.

Travel restrictions have already been tightened again in reaction to the discovery of the new variant, but there is a chance these will start to ease next year once we exit winter and enter the warmer spring and summer months.

Like everything else to do with Covid, there is no knowing for sure – and it seems likely the pandemic will continue to dictate rental trends for the next year, if not quite to the same degree as was the case in 2020 or 2021.

The above are just some of the trends that could occur in 2022, but what seems more certain is that the existing solid fundamentals of the market will continue to make the UK lettings market attractive to investors, landlords, agents and tenants alike.

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