The rental market in the UK has seen a significant surge in average rents, nearly touching a 10% increase over the past year. However, indications suggest that landlords may have reached the threshold of what they can charge tenants, marking a potential turning point in this upward trend.
Recent data released by Zoopla reveals that as of December, the average rent in the UK soared by 9.7% annually, settling at £1,201 per month. Landlords, benefiting from a shortage of supply, had been able to steadily raise rents, partly to offset the escalating costs associated with buy-to-let mortgage rates.
Yet, a shift seems imminent. Zoopla’s December Rental Market Report suggests that the UK may have hit its peak in rental growth. There has been a notable spike in rental listings offering reductions of more than 5%, as landlords endeavour to attract tenants grappling with financial strains.
Richard Donnell, Zoopla’s executive director, stated, “The UK is past peak rental growth, which will be welcome news to renters who have seen rents rise by almost a third over the past three years. London will lead the slowdown, acting as a drag on the UK growth rate.”
Regional Trends: Rising and Falling Rents
While a lack of supply has empowered buy-to-let investors to command higher rents, signs of resistance to escalating prices are emerging. Notably, London has witnessed a considerable deceleration in annual rental growth, dropping from 17% to 9% over the past year, with a noteworthy 10% of rental listings showcasing reductions exceeding 5%.
Conversely, Scotland continues to witness escalating rental prices, with annual growth reaching 12.9%, up from 11.4% a year ago. Cities like Edinburgh and Glasgow saw rents surge by 15.2% and 13.2%, respectively. Northern English cities including Manchester, Bolton, Derby, and Newcastle are also experiencing robust demand, offering landlords greater potential for rent increases relative to earnings.
Outlook for 2024: Potential Slowdown in Rental Growth
Zoopla anticipates a significant decline in annual UK rental growth to 5% by December 2024, half the current rate. London is predicted to exhibit annual rental growth of merely 2%, marking the lowest level since 2021. Factors contributing to this slowdown include a weaker job market, sluggish earnings growth, and mounting affordability pressures.
Additionally, falling mortgage rates might facilitate more first-time buyers entering the property market, thereby reducing rental demand. Richard Donnell notes, “The slowdown in rental growth over 2024 will be down to a weaker labour market, slower earnings growth, and growing affordability pressures.”
Richard Davies, from Chestertons, suggests an increase in rental supply as landlords re-enter the market and financially strained homeowners transition their properties into rentals amidst rising mortgage repayments. He forecasts a 5% rise in rents across the UK and London in 2024, followed by a decline to 3-3.5% in 2025 as new supply absorbs demand.
Amidst these shifts, the rental landscape appears poised for a period of moderation and potential equilibrium after years of relentless growth.