Rents paid by tenants in the UK’s private rented sector (PRS) witnessed a notable surge of 5.1% in the 12 months leading up to June. This increase, up from the previous month’s 5%, marks the largest annual percentage change since the data series began in January 2016, as reported by the Office for National Statistics (ONS).
The ONS Index of Private Housing Rental Prices revealed that the annual growth rate of private rental prices in the UK started to pick up momentum in the second half of 2021. The latest data shows that annual private rental prices rose by 5.1% in England, 5.8% in Wales, and 5.5% in Scotland during the same 12-month period.
Delving into the regional variations within England, the West Midlands experienced the highest annual percentage change at 5.4%, while the North East had the lowest at 4.4%.
Of note, London’s private rental prices saw an annual percentage change of 5.3%, surpassing the average in England and recording its highest annual rate since September 2012.
The Association of Residential Letting Agents (ARLA) published its June 2023 Housing Insight Report, highlighting that the number of new prospective tenants remained strong in June compared to May. However, inadequate stock levels persisted, resulting in a mismatch between supply and demand, which has grown by 57% since the same period last year.
Similarly, the Royal Institution of Chartered Surveyors (RICS) reported in its June 2023 UK Residential Market Survey that tenant demand continued to rise while new landlord instructions dropped to the lowest level since May 2020. This combination of increasing demand and diminishing supply is expected to drive rental prices even higher in the near future, as per RICS projections.
Consultancy firm TwentyCi revealed that the number of available private rental homes plummeted to a 14-year low, with landlords exiting the market due to rising mortgage costs. Only 241,000 PRS homes were available last month, signaling the challenges faced by renters in finding suitable accommodation.
Cornerstone Tax data indicated that merely one in five landlords found their investments to be profitable, with an additional 20% admitting to incurring losses in their investments. Consequently, 65,000 rental properties were listed for sale in the first three months of 2023.
David Hannah, chairman at Cornerstone Group International, expressed his views on the uncertainties prevailing in the rental market: “I think the rental market is filled with uncertainties at the moment, with rising rents making it less attractive from a renter’s standpoint and rising house prices making it less desirable for buy-to-let landlords to grow their portfolios.”
Hannah added that the sharp rise in expenses, ranging from maintenance and management fees to taxation and regulatory burdens, has led landlords to reevaluate their portfolios, leading to property sales.
However, while the influx of former rental properties might create opportunities for first-time buyers, it also exacerbates the difficulties faced by those in the rental market, where record rents are being charged across the UK, as noted by Riccardo Tessaro, co-founder, and chief executive at Gravity Co.
“Thousands of tenants have become trapped in a pressure cooker of limited supply, high competition for rental homes, and rapidly rising rents,” said Tessaro.
Michelle Lawson, director at Fareham-based broker Lawson Financial, explained that the continuous rise in rents should come as no surprise. With escalating mortgage costs, increased regulatory expenses, and the removal of Section 24, landlords find it challenging to absorb these rises and are naturally passing them on to tenants up the chain.
“One thing that needs to be understood is landlords should not be vilified nor the sector made any more divisive than it is, as they do not do this without just cause, as a good tenant is worth their weight in gold,” Lawson emphasized.
As the housing market dynamics continue to evolve, tenants and landlords alike brace for the impact of these changes, while policymakers and stakeholders must consider measures to address the housing supply-demand imbalance.