New largest annual growth recorded in November. Private rental prices paid by tenants in the UK increased by 4% in the 12 months to November 2022, according to the Office for National Statistics (ONS).
The latest Index of Private Housing Rental Prices (IPHRP) also showed that annual rental growth was slightly higher in November compared with the 3.8% recorded in October. This is also the largest annual percentage change since the data series began in January 2016. ONS said that rental prices for the UK, excluding London, rose by 4.2%, up from an increase of 4.1% in October. Private rental prices in London went up by 3.5%, up from a 3.0% increase in October.
Annual private rents increased by 3.9% in England, 3.1% in Wales, and 4.4% in Scotland. The East Midlands saw the highest annual percentage change in private rental prices, while London and the Northeast saw the lowest (3.5%). The Association of Residential Letting Agents reported in its Housing Insight Report that there had been a slight decrease in the number of prospective tenants registered per branch because of the ongoing lack of supply. It also reported an increase in rent prices across the UK.
The Royal Institution of Chartered Surveyors’ UK Residential Market Survey reported tenant demand remained strong across the lettings market, driving rents higher. ONS, however, pointed out that these supply and demand pressures can take time to feed through to the IPHRP as it reflects price changes for all private rental properties, rather than only newly advertised rental properties.
Rents Up 12.1% In One Year – Zoopla
Rental growth is showing no signs of any slowdown. Rents have gone up by 12.1% over the last 12 months to October 2022, which is equivalent to an increase of £117 per month, or £1,400 a year, according to property portal Zoopla.
Data from its UK Rental Market Report showed that this rental growth is showing no signs of any immediate slowdown, with the rise in rental cost in the three months to October being the highest quarterly gain since December 2021 at 3.6%.
Zoopla said that the rapid increase in rents is not surprising as rising demand for rental properties continue amid a lack of supply. Demand is 46% above average while total supply is 38% lower, it reported.
“The rental market continues to face a chronic imbalance between supply and demand,” Richard Donnell, executive director of research at Zoopla, remarked. “Demand-side pressures are being exacerbated by rising mortgage rates limiting access to homeownership for first-time buyers.”
Donnell, however, noted that there has been a modest increase in rental supply in recent weeks as the sales market weakens. “Increasing investment in new rental supply from multiple sources is the main route to reducing rental growth and making for a more sustainable private rented sector,” he pointed out.
Zoopla’s latest report on the rental market also revealed that rents in the largest UK cities are registering the fastest growth rates. Rents in London went up by 17%, or £273 per month, over the last 12 months. Above average rental growth was recorded in other big regional cities, including Manchester (+15.6%), Birmingham (+12.3%), Glasgow (+14.1%), Bristol (+12.9%) and Sheffield (+12.4%). The report predicted that stretched rental affordability will start to hit demand, and the pace of rent will increase in the first half of 2023. Rental growth is also expected to slow to 4% to 5% by the end of next year.
“If rental growth were to continue to run at 12% over 2023, the proportion of earnings needed to pay rent would be stretched even higher to 37%,” Donnell said. “This is not likely or feasible and we expect the growing unaffordability of renting to hit spending power. “This trend, supported by a modest improvement in available supply, could lead to rental growth slowing to 5% over 2023.”
Donnell added that demand for rented homes is only going to rise in the medium term, so it is vital that more supply from all forms of landlords, whether private individuals or large corporates, be encouraged. “It is important that policymakers encourage good landlords of all types and sizes to stay in the market and deliver much-needed supply,” he commented. “Only by increasing investment in the private rented sector can we ease the affordability pressures on renters in the medium term and make for a more sustainable rental market.”
Lettings Market “Does Not Bode Well For Low Income Tenants"
Trends in the lettings market “do not bode well for renters on low incomes” according to an analyst.
Jack Godby of lettings platform Ocasa says:“Tenants are facing a very tough time at present, as not only is the cost of living crisis stretching their finances, but high demand for rental properties is also pushing the cost of renting ever higher. “As such, tenants with tight incomes are losing out to those whose pockets are deeper but still not deep enough to entertain the idea of buying in today’s frantic sales market. “It doesn’t bode well for renters on low incomes. A cost-of-living crisis, inflation rises, and recently-announced tax increases mean real income is set to shrink.
“It used to be that home ownership was the driving aspiration that we looked towards. Today, however, we’re getting dangerously close to a point where, for many people, simply renting a good home is a very tough task in itself.”
His comments come as his platform reveals that in Britain’s fastest-moving rental markets, up to 30% of homes are snapped up by eager tenants within two weeks of being listed.
Across Britain on average, 17% of rental homes entering the market are being snapped up by tenants within two weeks of being listed – but some areas have a much more pronounced trend. The East of England is home to the fastest moving regional market with 24% of rental homes being grabbed within a fortnight; in London it’s 20% and in the southwest it’s 19%. On a city level, the fastest-moving rental market is found in Bradford, West Yorkshire, where 30% of properties are snapped up within two weeks of listing.
In Glasgow it’s 26%, in London it’s 20%, and in Bristol 17%.
Will The Rental Market Ever Cool Off?
Michael Cook is managing director of Leaders Romans Group (LRG)
We are currently seeing rental properties go within days, and sometimes hours of being placed on the market. Rent is also increasing at a rapid rate, with median average rent across the UK now at £971 per month. As the housing sales market is slowing, with prices dropping and mortgages being removed from the market, rent is high, and stock of rental property is in short supply. ‘Uncertainty’ is now a term commonly used when describing the UK property market. This is partly due to the economic instability that occurs with frequently changing policy. A slightly new stance on regulation is expected with changes of premiership and the lack of confidence in the market.
While aiming to put the tenant front of mind and improve quality of living for millions, the proposed Renters’ Reform Bill has inadvertently added further momentum to the ongoing reduction in rental stock. With added regulation and taxation, some landlords, have exited the market creating a gap in available housing and increasing rents.
To help landlords and tenants navigate the challenging six months ahead, here are our expectations on what we are likely to see happen in the rental market over the rest of 2022.
Landlord churn will slow down
We have seen higher rates of landlords exiting the market this year, leaving a supply and demand imbalance. Some landlords have weighed up staying in the lettings market against increased regulation and decided it is better for them to exit. However, over the summer we started to see this process slow as house prices began to plateau, and yields have increased. With a new government and a new set of economic challenges, that process is becoming even more pronounced, as it becomes harder to sell and to do so landlords wishing to exit will have to compromise at selling their property at a lower price than they would have achieved earlier in 2022. The repercussions of the recent mini budget are still sending ripples of uncertainty through the market, especially among first time investors, who will be reticent to trust the stability of interest rates during the conveyancing process. Those landlords that have not kept their rent in line with the market are often surprised at the rent achieved when initiating a new tenancy, and this can often be the catalyst to remain in the market against a backdrop of lower capital values versus those seen in the summer.
Low-income tenants will feel the pinch this winter
Despite government support with Cost-of-Living Payments and current energy subsidies, rents continue to rise alongside inflation meaning many people across the country are likely to feel the squeeze during the cold season. Fuel costs, plus higher interest rates, in addition to higher living costs generally will impact tenants, especially those on low incomes. A recent government report on poverty in the UK showed that a 30% increase in the poverty rate is expected before 2025, and that currently, nearly 20% of working-age people in the UK can’t afford to save ten pounds per week. As rents rise, those on lower incomes will be impacted, including social housing tenants. Although this is not an area of our business, we keep a close eye on renter arrears as the trends identified are often tell-tale signs of what might spill over into the private rental market.
Short term lets will make life harder for tenants
Many cultural factors have impacted a boom in short-term lettings over recent years, as those with disposable income and nomadic workstyles have opted for staycations and stints in Airbnb’s and holiday properties. Build to rent has also been a phenomenon, enabling investors to create modern, high-spec interiors for short-term residents. One of the main features of the proposed Renters’ Reform Bill is to remove the option for landlords to lock tenants into long-term contracts. While the intention is to give more flexibility to tenants, particularly to students and people looking for short term accommodation, it could have a negative impact in the long-term. With rents rising, many tenants are looking for security; to know they have a home for a set period of time, often years in many cases, at an affordable rate. The focus on short-term lets removes this and, under the new Bill’s proposal, landlords looking to sell (the main reason for lack of rental availability) can achieve possession quicker than if they were committed to a two or three year fixed tenancy. We are not sure this chimes with the narrative of the Bill to enable families to put down long term roots.
The Renters’ Reform Bill will pass through parliament
It is now widely expected that the Renters’ Reform Bill will pass through parliament by the next election, despite contention over policies during the Truss administration. Areas the bill can address include fair and equal rights of landlords and tenants, as well as stipulating more accountability for rogue landlords. The difficult marketplace created by mixed approaches and lack of proper enforcement to compliance and non-compliance can push ‘good’ landlords out of it completely, leaving tenants disenfranchised with rogues contributing to non-compliance but operating with relative impunity. One interesting stance from our new PM, Rishi Sunak, is that he wants to support local communities in their plans to build homes rather than promising ‘arbitrary, top-down’ targets for house building. This may further reduce the accessibility of homes to buy, while fuelling the rental market.
Although greater pressure is placed on landlords to meet compliance, the trend for landlords coming back to the marketplace will likely endure. This is partly because many people who once considered buying, are now looking to rent. The competition to rent high quality flats is reflective of greater instability in the mortgage market, which will certainly continue as a new government is formed and as we navigate through what is likely to be a recession on the horizon. The gap in supply of flats and rental properties will only make them more desirable, creating a pronounced demand for hot rental property in the UK market.