An online rental platform warns the average rent bill could reach as much as £2,270/month if prices rise in line with the hikes already seen across other living costs.
Numerous factors, foreign and domestic, continue to have a direct impact on living costs.
The price of rent, however, has not yet matched the increasing costs seen across other areas of life. In the past year, the average cost of a month’s rent in the UK has increased by £98, rising from £1,061 in 2021 to £1,159 in 2022. This is an annual increase of 9.2%.
While this is certainly a notable rise, Ocasa rental platform warns it’s far less than the rate of increase of other living costs.
In the past year, the average price of energy has increased by 95.8%. If rent had experienced the same annual increase, it would now cost £2,269/month.
In London – the UK’s most expensive rental market at £1,752/month is 2021 – a 95.8% hike would bring the price up to £3,808/month.
In the Southeast, such an increase would mean that prices increased from £1,139 to £2,422, and even in the UK’s most affordable rental market, the North East, rent would now cost £1,192.
The past months have also seen a sharp rise in inflation rates – up 9.9%.
The same rise in rent would leave the national average at £1,274/month while prices in London (£2,138), the Southeast (£1,359), and the Northeast (£669) would also leave renters significantly worse off.
Ocasa sales director Jack Oadby says: “It can only be a matter of time before this area of life also strains household finances as landlords raise rents in order to compensate for their own cost increases in both their personal and professional lives.
“Many households who are already bracing for a very harsh winter are likely to be under even more strain before Spring 2023 and we expect that the cost of renting may well be yet another household outgoing driving this financial strain.”
Rents Continue to Rise – ONS
Largest recorded annual increase reported last month.
Private rent paid by tenants in the UK increased by 3.8% over the year to October 2022, according to the Office for National Statistics (ONS).
The latest Index of Private Housing Rental Prices also showed that annual rental growth was slightly higher in October compared with the 3.7% recorded in September. This is also the largest annual percentage change since the data series began in January 2016.
Annual private rental prices increased by 3.7% in England, 3.2% in Wales, and 4.2% in Scotland in the 12 months to October 2022. Among regions, the East Midlands saw the highest annual percentage change in private rental prices (4.8%), while London saw the lowest (3%).
ONS said the annual percentage change of private rental prices remained steady between November 2019 and the end of 2020. Rental price percentage changes slowed in early 2021 and gained momentum later that year. Private rental prices have increased across all regions in 2022, including in London.
The Association of Residential Letting Agents (ARLA) stated in its housing insight report for September 2022 that the demand for properties continues to increase, as do rental prices. The supply of available houses to rent has not risen in the last four months, according to ARLA.
The Royal Institution of Chartered Surveyors (RICS) UK Residential Market Survey for October reported tenant demand remaining firm last month, with tenant enquiries rising across the UK.
The ONS, however, noted that these supply and demand pressures can take time to feed through to the Index of Private Housing Rental Prices, which reflects price changes for all private rental properties rather than only newly advertised rental properties.
Nervous Landlords Demanding Renters Have Guarantors
One in three tenants must find a guarantor in the country’s most competitive rental markets as arrears loom and nervous landlords demand a bigger safety net.
Almost 15% of renters now require a guarantor when searching for a home, according to data from referencing company Goodlord. This is up from less than 12% last year.
Requests for tenants to nominate another adult to pay their rent in the event of a default was once reserved for students and those with poor credit ratings. But the need for a guarantor has become non-negotiable for many landlords during the cost of living crisis.
The region with the highest rate was the Southwest, where around 30% of renters require a guarantor, up from 15% last year. A fifth of tenants need a guarantor in Wales and the Northwest, up from 16% and 18% respectively in 2021.
The share of tenants requiring another person to guarantee their rent has risen in every region of England and Wales, with the exception of London.
Blake Richmond, of Goodlord, said the cost of living crisis and steep rent rises had led to an increase in landlords requesting a named guarantor.
He said: “Tenants are having to stretch their budget further to secure properties, and landlords are seeking out the extra level of security provided by guarantors.
“It can add complications to the rental process and is something that should only be requested when genuinely needed. It otherwise could create unnecessary barriers to an already competitive rental market.”
When Sasha Wood and her husband began searching for a rental property in Windsor, they were shocked at how many required a guarantor. Here, in the Southeast, 16% of tenants must provide someone to guarantee their rent.
Ms Wood said: “Four properties required a guarantor, in one case it was specified in the advert and in another the lettings agent told us at the viewing, before any credit checks had even taken place.
“We have been renting for 15 years and have never come across it before. We are in our late 30s with decent, full-time jobs and a good renting record. But who were we meant to ask to be our guarantor, our elderly parents?”
Share of new tenancies where rent is paid upfront© Provided by The Telegraph
Landlords have historically only asked for guarantors in cases where tenants might be more likely to default on their rent, such as students, the self-employed or those on lower incomes, said Allan Fuller, an estate agent in London. But he warned the requirement could complicate the process.
Mr Fuller said: “Not everyone will feel comfortable being a guarantor. It will pretty much always need to be a family member, and if you have three people sharing a house then one parent isn’t going to want to be responsible for the other two tenants.”
The only region where the requirement of a guarantor has shrunk is Greater London. So far this year 8% of tenants needed to satisfy the additional condition, compared with 9% in 2021.
Mr Richmond attributed the smaller share to the already “expensive and competitive” nature of the capital’s rental market.
He said: “Often tenants in London are offering to pay more up front just to get their foot in the door of a property, giving landlords another sense of security outside of guarantors.”
Build-to-rent could see record year as volumes soar by 10%
The build-to-rent sector could increasingly plug the supply gap for UK tenants, and construction in the industry is booming to meet demand.
Property investors and developers continue to see the huge value and potential of the burgeoning build-to-rent space in the UK as the country’s rental market struggles to keep up with the needs of tenants.
New research released by Knight Frank has revealed that volumes in the niche sector have risen by 10% in the third quarter of 2022, with investment levels hitting £1.435bn. This brings the total investment for 2022 so far up to £3.165bn, up from £2.895bn at the same point last year.
The estate agency believes we are on track to see a record-breaking year in terms of growth in the build-to-rent sector, due to the volume and value of deals in the pipelines that are due to exchange in the final quarter of 2022.
A robust asset class
Build-to-rent differentiates itself from traditional buy-to-let in a number of ways, the main one being the quality of the offering. Properties are developed and sold specifically for renting tenants, normally with a focus on long-term renting which creates a more embedded community.
A lot of institutional investment currently supports the sector, as well as individual investors. The likes of John Lewis and Legal & General have both recently entered the fold as the area has evolved, and while much of the investment remains focused on London, developments elsewhere are accelerating rapidly.
According to Nick Pleydell-Bouverie, head of residential investments at Knight Frank, investor confidence is currently extremely high, and it is expected to remain so even through turbulent times.
“It is a robust asset class that outperforms in periods of economic uncertainty,” he said. “While there are clearly market headwinds that will need careful navigation, investors can be confident that the sector remains attractive, with strong current and forecast rental growth prospects.
“As mortgage costs rise and buy-to-let rental stock declines, we will see demand for high-quality, professionally-managed build-to-rent products continue to increase, providing investors with a resilient and appreciating income stream for years to come.”
Premium property for premium rents
An estimated 7% of all new-build homes in Britain are build-to-rent developments, according to recent data. While London continues to be home to more than half of the market share in terms of levels of investment, the likes of Birmingham, Liverpool, Manchester and Sheffield are all catching up.
There is huge demand for rental properties at the moment from tenants, and professional tenants in particular are considering build-to-rent options as a more premium choice. The added amenities that they often include, such as concierge, shared workspace and communal areas, gyms and even creches, are an added draw.
Rents have been increasing across the board in recent years, and the average rental value in the UK for build-to-rent is now around £1,786 per month, according to EG Premier Data. In Birmingham, it sits at £1,352 per month, while in more affordable Liverpool it is £1,251 per month.
Of course, the initial cost for an investor wishing to purchase a build-to-rent apartment or house tends to be higher than for an existing property that is not purpose-built, but the growing popularity of this type of rental home is drawing more buyers into the fold.
In the north and Midlands in particular, EG’s data shows that properties in this specific sector are being snapped up by tenants faster than elsewhere, with an average of just three to seven days between listing and let. The UK average is 28 days, while in London and Edinburgh it takes more than 30 days on average.