Falling Buyer Demand: good news for landlords — but a future problem if things continue

The South London Market appears stable…

And largely, it is. But signs point to a recent drop in the residential sales market – and whilst we might look at that and take ‘sales market’ as being the operative term, there are implications for landlords and tenants – particularly if things continue.

New data from national chain Hamptons – part of the Connells group of estate agencies – highlights a drop in demand from ‘additional’ homebuyers and property investors. The number of buyers looking to purchase an additional property is now at its lowest level since May 2020, during the height of the pandemic.

In the short term, it may seem like positive news for South London landlords. With fewer new investors entering the market, competition for rental properties is likely to remain high – and of course, that should mean rental values remaining resilient.

Here in areas like Streatham, Balham, Tooting and Colliers Wood, we continue to see incredibly strong tenant demand. The cost of buying a home remains a barrier for many renters, despite data showing that first time buyer numbers have increased by 4% in London year on year.

Nevertheless, a chronic undersupply of properties purchased with the intention to let out pushes up rents - potentially unsustainably – creating huge affordability challenges for tenants.

Rachel Reeves has announced a huge boost to funding for social and affordable housing, which might help to ease this situation – but the beneficial effects will be very gradual. And whilst a 4% uplift in the number of first time buyers should mean a reduction in renters, as renters transition to owners, at Your Home Managed we know that the demand coming through from new renters is off the scale – we see it first hand, every day.

What the numbers show

Nationally, Hamptons’ report has revealed an 18% year-on-year drop in buyers seeking an additional property.

In London, buyer demand is slightly up overall, but with stock levels in the capital being particularly low by comparison to other parts of the country (down 12% year-on-year), the pool of available rental properties is unlikely to grow meaningfully in the short term.

At the same time, fewer accidental landlords are entering the market from the sales side. They are choosing to sell their surplus-to-requirements properties rather than to keep and let out – spooked by changing legislation and changes to tax. And for the same reasons, other landlords are not buying them at the same rate.

There are of course speculators out there, looking to seize on the opportunity and build their portfolios. But in higher-value brackets (£1m+) in particular, many sellers are sitting tight rather than accepting lower offers, and although that is not limited to buy-to-let purchases, it does nevertheless reduce the flow of potential rental stock.

Key takeaways for South London landlords:

• Rents are likely to remain strong for now, with limited stock and strong demand.
• Existing landlords are in a good position, as fewer new investors are entering the market.
• Longer-term supply issues could cause problems – both for renters who find their affordability stretched, with the knock on damaging effects on market stability.

Whilst landlords may benefit from today’s conditions, we need to watch how things evolve. If the rental sector continues to shrink, we could see growing calls for intervention — something landlords will want to be prepared for.

In the meantime, professional management and a focus on quality will help landlords attract and retain good tenants in what remains a highly competitive South London market.