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Rental growth is coming off the boil in the UK, in a reversal of the trend of surging tenants’ costs since 2020 — yet demand for rented property remains high.
Rents on new lets rose by an annual 6.6 per cent in May, the lowest level in 30 months, according to research by Zoopla, the property portal, with positive declines over the past three months in cities including Nottingham, London, Glasgow and Brighton.
Yet tenant demand remains intense. The number of people competing for each home — 15 per property — is more than twice the pre-pandemic average.
The countervailing trends were explained by tenants reaching the limits of affordability, according to Richard Donnell, Zoopla research director.
“For the past two and a half years rents have outpaced earnings by a significant amount. You can have periods when that happens, but there comes a point when renters simply can’t afford to pay the rent. It’s affordability that slows rental growth more than supply and demand,” he said.
These strains are exposed by the ratio of rent against tenants’ income, which has been on the rise for three years. It now ranges from 21 per cent in Scotland and north-east England to 41 per cent in London.
The pressure on renters is greater in areas which are expensive for first-time buyers. Rental demand remains high because aspiring homeowners are unable to buy, Zoopla said. But in other places, there has been an easing of pressure on the rental market as mortgage rates have gradually declined in recent months, improving affordability for buyers.
The sharpest drop in rental growth came in London, where rents grew by 3.7 per cent compared with over 13 per cent this time last year. In Scotland and the North East, where a larger gap between rents and incomes leaves some latitude for landlords to raise rents, they went up by 9.3 per cent and 9.5 per cent respectively.
Zoopla identified a similar disparity between inner and outer London. In Westminster, rents rose by a comparatively modest 2.5 per cent. But in outer areas with cheaper housing, such as Redbridge and Havering, rents rose by more than 10 per cent. The average monthly rent in London is now £2,122, compared with £1,195 across the rest of the UK.
While Zoopla’s data is restricted to rents for new lettings, research last month by estate agent Hamptons included rents for existing tenants renewing a contract. It found that the rental growth for existing tenants (at 8.3 per cent) was higher than it was for newly let homes (at 6.4 per cent).
Aneisha Beveridge, research director at Hamptons, said: “Over the last two years, strong rental growth on the open market has meant that the gap between market rates and what some tenants were paying rose significantly. Tenants fortunate enough to be protected from higher rents by their landlord or longer contracts are increasingly seeing their rents rise.”
However, existing tenants may have seen a bigger rise, but they still pay less on average. The rent for a tenant renewing a contract — at £1,151 — is still around 13 per cent lower than the rent paid by a new tenant.
For those who stay put and renew their contract, that adds up to savings of £2,135 a year on average. As a result, fewer tenants are moving. The number of renters moving home had dropped to levels last experienced during the pandemic lockdown, Hamptons said.
Housing affordability is set to be a significant battleground in the upcoming election, as the main parties set out plans to relieve supply strains with a big surge in housebuilding. However, government pledges on housing have a long record of disappointing.
Zoopla, which predicts an overall rental rise of 5 per cent in 2024, called for politicians to recognise the importance not only of owner-occupied homes, but rental properties. “True progress will only be demonstrated by political parties setting out specific plans and goals for the future of the private rented sector in manifestos,” it said.
