The ONS today released its Index of Private Housing Rental Prices for September 2023.
According to the Index —an experimental price index that monitors the prices paid for renting property from private landlords in the UK—there has been a significant gain in private rental prices, especially in the year preceding September 2023.
A Peak in Private Rental Prices
A crucial tipping point in year-on-year statistics for the United Kingdom indicates an increase in the private rental prices paid by tenants. Rising by 5.7% in the 12-month window running up to September 2023, this marks an increase from the revised 5.6% in the preceding 12 months up to August 2023. This uptick is a clear indication of the buoyant rental market, an important consideration for anyone looking to invest in the private rental sector.
A Closer Look at Regional Differences
This nationwide rise in private rental prices isn’t across the board. Different geographical locations within the UK paint a unique picture of the state of private rentals. England, for instance, experienced an annualised increase of 5.6%, while in Wales rental prices increased by a whopping 6.9% per annum. Scotland saw a 6 percent increase, but these are year-on-year up to September 2023.
London Vs. The North East
Within England, a city-wise comparison demonstrates quite a contrast in terms of the annual percentage change in private rental prices. London, a property hotspot and a favourite among investors, leads the pack with a 6.2% increment in rental prices compared to the 12 months leading up to September 2023—the highest percentage change since the London-specific data series kicked off in 2006.
In contrast, the North East, although experiencing an increase in private rental property costs, lags behind with a 4.7% increase year-on-year until September 2023. For investors, the differences in regional trend can certainly provide food for thought when deciding where to put their money.
The State of Affairs in Northern Ireland
Data up until July 2023 indicates that Northern Ireland saw a 9.3% increase in private rental prices over 12 months. This percentage represents a slowdown from a 10% peak reached in the 12 months up to March 2023.
An Insight into Inflation’s Role
Another factor making waves in the private rental market is inflation. The UK has seen rental price inflation rate, marked by the number of changes in the price of rentals, climb steadily in the second half of 2023. An interesting point is that growth was noted in all regions except London, where prices decreased over this period—details to watch out for, for potential London investors.
The Compelling Case of London
The UK’s capital registered a resounding increase of 6.2% in the 12 months running up to September, up from 5.9% in the preceding 12-month period. This increase in private rental prices signals that London still remains an attractive proposition for private housing investment.
The Royal Institution of Chartered Surveyors (RICS) further emphasises London’s rental market resilience, noting an increase in tenant demand in September 2023, while new listings have decreased.
Supply Vs Demand in the Rental Market
Keeping the supply and demand principles in mind, the increased need for rental apartments but dwindling options to select from means London and the general UK property market can anticipate an increased rental pricing of about 5.0% over the next 12 months.
However, these demand-supply pressures are slow to reflect in the Index of Private Housing Rental Prices (IPHRP). This slow response is because this particular index measures price changes in existing rental properties, not just newly advertised properties.
Country-by-Country Analysis of UK’s Rental Price Changes
England’s Rental Market
In England, gains from 5.4% in the 12 months to August 2023 increased to 5.6% in the 12 months to September 2023. Excluding London, the rise in rental property prices was 5.3% year-on-year to September 2023, the highest changes ever recorded since data compilation commenced in 2006.
Prices Soar in Wales
Wales recorded a 6.9% increase in private rental prices in the 12 months up to September 2023, the highest among all countries in Great Britain.
Private sector measures, such as those by HomeLet, indicate that the annual inflation for new tenancies in Wales rose to 11.0% for the 12 months to March 2023, compared to IPHRP’s lower annual inflation rate of 4.4% for the same period. More recent figures show new let annual inflation in Wales slowing to 7.3% in the 12 months to September 2023.
A Look at Scotland
Scottish private rental prices grew by 6.0% yearly up until September 2023, mimicking the price increase rate of the 12 months leading up to August 2023. The introduction of the Cost of Living (Tenant Protection) Scotland Act late in 2022 imposed a price cap on in-tenancy rental price increases and could likely have an impact on price rises.
Comparing Private Sector Rental Growth Measures
Private sector organisations estimate changes in rental prices — among them Zoopla, Rightmove and HomeLet. According to these agencies, the UK’s annual rental price inflation was around 10.1% for the 12 months up to September 2023 (Rightmove and HomeLet) and 10.3% up to August 2023 (Zoopla). These numbers markedly outstripped the 5.7% UK annual inflation rate reported in the IPHRP up to September 2023.
However, private companies focus mainly on newly-let properties, making these rates more volatile and considerably higher than IPHRP estimates.