The UK rental market, which has been exceptionally hot in recent years, is showing signs of a significant cooldown. This shift could bring relief to tenants who have been grappling with steep rent increases, but requires careful planning for landlords
The Pace of Rent Increases Slows
According to Zoopla’s latest rental report, the growth in rent prices has begun to decelerate. December figures show a rise of 9.7%, a decline from the previous year’s 11.9%. This trend suggests that the rapid increase in rents is approaching its limit, primarily due to growing affordability issues among tenants.
Forecast for the Coming Year
Zoopla predicts that this slowing trend will continue, with the pace of rental growth potentially halving by 2024. This is a notable change from the rapid increases seen over the past three years.
Market Dynamics and Tenant Choices
Harriet Scanlan from Antony Roberts estate agents observes a slight shift in the rental market dynamics. With more properties available, tenants now have a wider range of choices, leading to fewer instances of multiple offers on each property. This change allows tenants to take a more measured approach in their housing decisions.
Despite these shifts, landlords are still reaping the benefits of a strong rental market, with minimal void periods between tenants. However, the increments in rent upon renewal or re-letting have slightly tempered.
London’s Rental Market
London, in particular, has seen a significant slowdown in rental growth, dropping from a 17% increase a year ago to 9% in December. Despite this slowdown, rents in London remain high, averaging £2,415 a month compared to the UK average of £1,348.
The inner London boroughs, including the City of London, Westminster, and Tower Hamlets, are experiencing the lowest annual growth rates, hovering around 6-7%.
The Four Driving Forces Behind Rent Increases
- Post-Pandemic Economic Reopening: The lifting of pandemic restrictions and resumption of international travel.
- Strong Labour Market: Jobs growth has heightened demand for rental homes.
- Higher Mortgage Rates: This has made home ownership more expensive, keeping would-be buyers in the rental market.
- Record Immigration Levels: High numbers of overseas students and other immigrants have boosted demand.
Scotland and Northern Cities
Scotland is witnessing an opposite trend, with rental growth reaching 12.9%, attributed to strong demand and new rent controls.
Cities like Manchester, Bolton, Derby, and Newcastle are experiencing double-digit rental growth due to strong demand and more room for rent increases relative to earnings.
Evidence of Overextension
Zoopla has noticed an increase in rent reductions, indicating that rents may have risen too fast in some areas. This is particularly evident in London, where 10% of rentals saw price reductions of at least 5%.
Projections for 2024
Zoopla expects the UK rental growth to slow to 5% by December 2024, with London’s growth being the lowest since 2021. This slowdown is attributed to weaker labour market, slower earnings growth, and growing affordability pressures, especially in southern England.
Richard Donnell’s Insights
Richard Donnell from Zoopla highlights that while the market is moving towards a more balanced state, the supply-demand imbalance in rented housing will persist. However, regions where affordability is less constrained may see rental prices rise above the UK average.
A New Phase for the Rental Market
The UK rental market is entering a new phase, marked by a slowdown in rental growth. This change is driven by a combination of economic factors and shifting market dynamics. While landlords continue to benefit from a buoyant market, tenants can expect a more balanced and affordable rental landscape in the near future.