Tenant demand reached a five-year high during the final quarter of 2020, research conducted on behalf of Paragon Bank has revealed.

Nearly a third (32%) of landlords reported increasing levels of tenant demand during the final three months of the year, the highest level since Q1 2016. The figure was up from 29% reported in the previous quarter and 25% recorded in the same period in 2019.

The research of over 800 landlords, conducted by BVA BDRC, showed clear regional differences in the proportion of landlords recording growing tenant demand.

Six out of 10 (58%) landlords in the South West reported growth in tenant demand, compared to just 10% in central London. Other strong regions included the West Midlands (48%), Wales (44%) and the South East (42%).

Richard Rowntree, Paragon Bank Managing Director of Mortgages, said: “We saw a clear upturn in tenant demand in the second half of 2020 after restrictions on the housing market were lifted. The strong levels of people looking for rented property continued during the final quarter, which may be related to renters wanting to secure a new property ahead of any new lockdown restrictions, which of course came from November onwards. 

“The housing market is also reporting high levels of tenancy renewals, so good quality rental property is at a premium in desirable markets. I would expect that to continue into the new year and throughout 2021.”

Despite healthy levels of tenant demand, the majority of landlords plan to keep rents at the same level over the next six months. Nearly two thirds (64%) say they have no plans to change rents, 15% say they will increase rents and 9% plan to lower rent levels.

In addition, levels of landlord confidence edged up year-on-year during Q4 2020 across 4 of the 5 key optimism indicators recorded by BVA BDRC. Landlords felt more confident about rental yields, their capital gain, the UK private rented sector and their own letting business than they did during the same period in 2019.

The only indicator that was down was confidence in the UK financial markets, which could reflect the economic damage of Covid-19, plus Brexit.

Overall, 35% of landlords rated the prospects for their own lettings business as good or very good during Q4 2020, compared to 30% in the previous quarter and 31% during the same period in 2019.

Richard Rowntree added: “Despite the pressures on landlords due to volatile economic conditions and rising unemployment hitting tenants’ income, confidence is strong and robust. Tenant demand is playing a key role in that.”