The red-hot rental market is cooling down! After three years of rents climbing faster than wages, things are starting to change. While landlords can still expect rent increases, the pace is slowing down significantly.

The number of people looking for rentals has dropped by a massive 39% in the last year. However, the market is still considered “hot” with 17 people vying for every available property – that’s double the pre-pandemic average.

More Homes On The Market

The good news for renters is that more homes are becoming available. This is partly due to corporate landlords buying new builds and a slight increase in people buying their first homes thanks to lower mortgage rates.

The average estate agent now has 17% more homes for rent than last year. But there’s still a big problem – the average agent has a third fewer homes than before the pandemic. This means renters are still facing a tough time finding a place.

Rent Rises Slowest In Years

The good news for tenants is that the pace of rent increases is slowing down. Over the last year, rents for new lets have gone up by 5.7%, reaching an average of £1,232 per month across the UK. But in the first half of 2024, rent rises were just 1.6% – the lowest level since 2021! This shows the pressure is easing on renters.

Looking ahead, rents are expected to be 3-4% higher in 2024, compared to 8% in 2023 and 11% in 2022.

City By City Differences

The rental market isn’t uniform across the UK. Some cities are seeing slower rent increases than others.

• Falling Rents: In five cities, rents have actually fallen in the first six months of 2024. In 75% of cities, rent inflation is much lower than a year ago.
• Still Hot: Some cities are still seeing strong rent growth, including Bradford and Liverpool.

This variation is due to a mix of factors, including:

• Fewer Overseas Students: The slowdown in international student applications has reduced demand in some cities.
• Weak Labour Market: Some areas are experiencing a weaker job market, which also impacts rental demand.
• First-Time Buyers: Lower mortgage rates are helping some renters become first-time buyers, freeing up rental properties.

London’s Big Shift

London is still the most expensive rental market in the UK with an average rent of £2,172 per month – almost 70% higher than the national average.

• Rent Falls: Affordability is biting in London, and rents have actually fallen in over a third of the capital’s boroughs. The biggest drops are in inner east London, places like Tower Hamlets, Newham, and Greenwich.
• Supply Boost: More corporate investors are buying new homes in London to rent out, boosting supply and slowing rent increases.
• Outer London Growth: While overall rent increases have slowed, the biggest growth is in outer London boroughs, where rents are still lower than the city average.

Landlords Adjusting

As the rental market normalises, some landlords are selling properties that were previously rented out. This is happening more in London and the South East, where higher mortgage rates and lower rental yields make it tougher for landlords to refinance their mortgages.

However, the good news for landlords is that the income from rental properties remains strong. This means that rental investment is still attractive, but the focus is shifting from capital gains and leveraging debt to simply enjoying the steady income from rents.