Over on the PropertyWire website, Alison Thompson, a leading expert in national lettings from the Leaders Romans Group, sheds light on the trends and predictions that could shape the future of renting in the UK.
For decades, rent increases in the UK moved predictably alongside wage growth, usually keeping pace with inflation at a steady rate of 2-3% annually. This pattern held true from the late 90s, following the advent of buy-to-let mortgages, until the world was gripped by the pandemic in 2020. Since then, the rental market has been anything but predictable.
The past three years have seen rent prices for new lets surge by an astonishing one-third, driven by an acute shortage of available properties and fierce competition among tenants. Zoopla’s recent statistics paint a clear picture of this trend:
- UK overall saw rents jump by 9.7%
- London experienced a 9% increase
- Scotland led the charge with a staggering 12.9% rise
Especially in Scotland, the sharp spike in rent for new lets can be attributed to the cap on rent increases for existing tenancies, which is currently set at 3% per year.
Understanding the Surge in Rent Prices
The simple explanation behind these soaring costs is tenants’ ability to meet them, albeit just for new lets. The Office for National Statistics (ONS) provides a broader view, including existing tenancies, showing:
- An average rent growth of 6.2% across the board
- Wages, on the other hand, grew by an average of 7.2%, with benefits increasing even more
Interestingly, despite these significant rent hikes, the English Housing Survey indicates that the proportion of income spent on rent in 2022-23 was slightly less than a decade ago, dropping from 34% to 32%. However, without housing support, this figure climbs to 37%, underscoring the financial strain many tenants are experiencing.
What’s on the Horizon for Rent Prices?
Although the pace of rent increases has started to slow, the historical trend suggests that rents will continue to rise, closely mirroring wage growth. The balance between supply and demand plays a crucial role in this dynamic, with any imbalance leaning towards affordability pushing rents upward.
Looking ahead to 2024, Zoopla forecasts a notable slowdown in rental growth, thanks to improved supply and the growing impact of affordability on demand. London and other high-rent areas are expected to see the most significant deceleration, with projected annual growth in the capital at a mere 2%.
Rightmove’s findings echo this sentiment, noting an uptick in rental properties seeing advertised rent reductions—from 16% to nearly a quarter in the last quarter of 2023. Despite advertised rents being over 9% higher than the previous year, the increase in the last quarter was a minimal 0.2%. Their prediction? A 5% rise in rents outside London and 3% within, for the coming year.
The Bottom Line
These figures, while serving as a general guide, represent averages that mask the vast differences at the regional level and between various property types. The overarching trend, however, suggests that while the rental market may be cooling slightly, the era of significant rent increases is far from over.