The Future of the Manchester Buy-to-Let Market in 2024

21st Feb 2024
Jason Watkin
The Future of the Manchester Buy-to-Let Market in 2024 - Julian Wadden

The UK's property market is facing a significant challenge as the availability of homes for rent has plummeted to its lowest level in five years, exacerbating the difficulties tenants face in finding affordable accommodation. 

This trend was highlighted in a recent analysis, which revealed that only 261,542 private rental homes were available per month in the UK in 2023, marking a steep decline from the 379,459 monthly average of rental homes available in 2020. This drop of 31% underscores a pattern trend that has been developing over recent years.

What is causing this trend?

This scarcity of rental properties is occurring against a backdrop of increasing mortgage costs for landlords, which, in turn, places additional pressure on the rental market.

Higher interest rates, coupled with a high demand for rental properties, have led to significant increases in rental prices (rising from £1,343pcm in 2020 to £1,739pcm in 2023, an increase of 29%), making it increasingly difficult for tenants to find affordable housing. 

The combination of reduced availability and escalating costs creates a challenging environment for renters, finding fewer properties available at higher rents.

The difficulties tenants face are further compounded by the financial pressures on mortgaged landlords, who have seen the affordability of mortgages decline sharply. This has led to a re-evaluation of their business models by some landlords, with a resultant divestment from rental property portfolios in some cases. The impact of this on the market has been profound, with average buy-to-let mortgage rates experiencing a sharp increase, further exacerbating the challenges landlords and tenants face.

Rising rents are playing a part

The UK rental market's dynamics have shifted significantly, with rents rising by 29% as available rental stock dwindled by 31% since 2020.

The Bank of England has highlighted the potential repercussions of this situation in its financial stability report in the summer of 2023, noting that many landlords are likely to seek a raise in rents to offset their higher costs as they come off their fixed-rate mortgages, thereby exacerbating the difficulties for tenants, particularly those with lower incomes and lower savings.

The supply crunch in the rental market has led to increased competition among prospective tenants, with many properties being let almost immediately to quality tenants. This competition drives rents upwards, making it even more challenging for new tenants to find affordable housing. Additionally, the reluctance of existing tenants to move, fearing higher rents elsewhere, contributes to the shortage of available properties, as fewer tenancies are ending and coming back onto the market.

This situation is particularly acute at the lower end of the price spectrum, where the availability of homes to rent for less than £1,000 a month has significantly declined, making it even more challenging for those on tighter budgets to find suitable housing.

740,027 sub £1,000 pcm UK rental properties came onto the market in 2020; this dropped to 464,774 in 2023, a drop of 37.2%.

In contrast, the market for premium properties (over £2,000 pcm) has seen an increase in availability of 52.6% (from 203,502 coming on the rental market in 2020 to 310,516 in 2023), highlighting the stark disparities within the rental market.

The implications of this trend are far-reaching, affecting not only those currently looking to rent but also the broader housing market and the economy. 

How is this an opportunity for Manchester landlords?

The escalation of rental prices signifies a robust income stream for Manchester property investors. This is particularly advantageous in a market where high demand ensures properties are let swiftly, often to quality tenants willing to pay a premium for scarce housing options. For Manchester landlords, this means not only an immediate increase in rental income but also the prospect of sustained long-term profitability as market dynamics push Manchester rents even higher.

Furthermore, the challenging mortgage landscape, with rising buy-to-let mortgage rates with high percentage mortgages, has meant more landlords leaving the market, thereby reducing competition and potentially increasing the demand for existing Manchester rental properties even further. 

This unique set of circumstances presents an opportune moment for current and prospective landlords to capitalise on their Manchester property investments, leveraging the tight supply to secure higher rental yields and enhance the attractiveness of their property portfolios.

What about Manchester tenants?

As the UK grapples with this challenging rental market landscape, a multifaceted approach is needed to address the underlying issues. This includes considering the impact of mortgage costs on landlords, the affordability of rents for tenants, and the overall availability of rental properties. 

The Government need to build more homes. Yet excluding land, the building costs in the UK start from £163 per square foot. A 3-bed semi is a minimum of 1000 ft.². The most conservative estimate shows that Britain is approximately 2 million households short now, meaning the bill for those additional 2 million homes would be £326bn (excluding the land). For context, the NHS costs £181bn a year!

The Government currently spends £17.35bn a year on housing, which would need to increase to £49bn a year for the next ten years to pay for those 2 million homes. To give you an idea of what that would cost taxpayers...

What would be needed

Income tax would need to rise by 5.81 pence in the pound to pay for those additional 2 million homes.

That is the equivalent of an extra £991 per year for every taxpayer for the next ten years - not a vote winner! Yet without significant Government intervention and strategic planning, the difficulties tenants face in finding affordable homes will likely persist, with potential long-term implications for the housing market and the broader economy.  

Meanwhile, British landlords must pick up the pieces and continue to buy properties. Unfortunately, it is the nature of the game that with limited supply and increasing demand, prices (i.e. rents) go up.