In a startling development, private rents in the UK have skyrocketed at an unprecedented rate, surpassing all previous records since January 2016, according to the latest figures released by the Office for National Statistics (ONS). The report reveals a nationwide increase of 5.1% in rental costs, with Wales and Scotland witnessing even steeper rises. As housing expenses constitute a significant portion of individuals’ monthly budgets, such sharp spikes in rents are expected to have a substantial impact on households.
Conversely, the surge in property prices has exhibited a more tempered growth rate due to higher mortgage rates constraining the purchasing power of home-buyers. Between May 2022 and May 2023, UK house prices experienced a modest uptick of 1.9%, a decline from the 3.2% increase observed in the preceding 12-month period.
Aimee North, head of housing market indices at the ONS, commented, “UK annual house price inflation slowed again in May for the seventh consecutive month.” She further noted, “While the average UK house price remains higher than 12 months ago, prices are now £7,000 below the recent peak in September 2022.”
The surge in rental costs has been particularly pronounced, with Aimee North noting, “UK rental prices increased again, with the highest annual inflation since records began in 2016.” The ONS data reveals that rental prices in Wales rose by 5.8%, while Scotland and England experienced increases of 5.5% and 5.1%, respectively, in the 12 months leading up to June. Notably, the West Midlands witnessed the most substantial rise in England at 5.4%, while the North East recorded a more modest increase of 4.4%. In London, rents escalated by 5.3%.
These latest housing statistics emerge against a backdrop of easing inflation. The ONS recently reported that inflation for June stood at 7.9%, representing a deceleration from May’s 8.7% figure. However, a series of interest rate hikes over the past 18 months have contributed to elevated mortgage rates for both homeowners and landlords, consequently exacerbating the trend of escalating rents.
Michelle Lawson, director at Lawson Financial, a Fareham-based broker, stated that the combination of rising mortgages and regulatory changes makes the surge in rents unsurprising. She emphasized that landlords can no longer absorb these mounting costs, necessitating their transfer to tenants. Other property brokers have additionally cited a scarcity of available rental properties as a factor driving up demand beyond supply levels in the market.
Rhys Schofield, managing director at Peak Mortgages and Protection, a Derbyshire-based mortgage advisers firm, highlighted that demand has surged by 48% compared to pre-pandemic levels, while rental properties are as scarce as “hen’s teeth.” He expressed concern that the continuous upward trajectory of rents does not benefit tenants.
Regarding property prices, the ONS data demonstrates a mere 1.9% increase in average values during the year ending in May, the most recent month for which statistics are available. By contrast, house prices experienced much more rapid growth in previous periods, with annual house price inflation peaking at 14% last year before reaching its zenith in September 2022.
Significant regional variation in house price inflation is evident throughout the UK. In England, the average house price rose by 1.7% to reach £304,000 in the year ending in May. Wales witnessed a 1.8% increase, bringing the average price to £213,000. Meanwhile, Scotland observed a 3.2% surge, with the average price reaching £193,000. In Northern Ireland, the average price rose by 5% to £172,000.
Gabriella Dickens, a senior UK economist at Pantheon Macroeconomics, projected an overall decline of approximately 10% in house prices from their peak to trough. However, Dickens added a cautionary note, stating that even if prices do fall to that extent, they will still remain approximately 15% higher than pre-pandemic levels.