After three years of relentless increases, rents in the UK are finally showing signs of stabilizing, bringing much-needed relief to renters who have been grappling with soaring housing costs. While landlords can still anticipate modest rent increases, the pace of growth is expected to slow considerably, signalling the end of the recent rental boom.
According to recent data, demand for rental properties has dropped by 39% over the past year, though the market remains competitive. Zoopla reports that an average of 17 prospective tenants are vying for each available rental, still double the pre-pandemic average from 2017 to 2019. The supply of rental homes has inched up by 17% over the past year, driven by corporate landlords purchasing new-build properties and slightly improved mortgage rates that are easing the path to homeownership for some renters.
Despite this gradual increase in supply, finding a rental property remains challenging. The average estate agent currently has only two-thirds of the rental inventory available before the pandemic, underscoring the ongoing housing shortage.
Rent Growth Slows to Three-Year Low
The average rent for new tenancies has increased by 5.7% over the past year, bringing the UK average to £1,232 per month. However, rent growth in the first half of 2024 was just 1.6%—the lowest since 2021—indicating that the rental market is cooling, largely due to affordability constraints.
If current trends continue, UK rents for new tenancies are projected to rise by 3-4% in 2024, a significant deceleration from the 8% growth seen in 2023 and the 11% surge in 2022.
Three-Quarters of Cities See Lower Rent Inflation
The shifting dynamics of supply and demand are affecting rental prices across the country. In 75% of UK cities, rent inflation is now lower than it was a year ago. Factors such as a slowdown in overseas student applications and a weaker job market have dampened demand, while falling mortgage rates are enabling more renters to transition into homeownership, freeing up rental properties.
In some areas, rents have risen so sharply that they have surpassed what tenants are willing or able to pay, resulting in slight declines. Zoopla’s rental index, which tracks 64 cities, shows that rents have decreased in five cities during the first half of 2024, with inflation slowing in the majority of others.
Nevertheless, rents continue to rise in certain locations, particularly in Bradford and Liverpool, where there is still room for growth. Suburban areas that offer more affordable housing relative to larger cities, such as Rochdale, Doncaster, Sunderland, Southend, and Telford, have also seen rent increases of over 4% in the first half of the year.
London Sees Rent Declines in a Third of Boroughs
London remains the most expensive rental market in the UK, with average monthly rents at £2,172—nearly 70% higher than the national average and more than double that of many other regions. However, the high cost of living is now putting a cap on rent increases, and Zoopla’s data shows that rents have fallen in over a third of London boroughs during the first half of 2024. The most significant declines have been observed in inner East London, particularly in Tower Hamlets, Newham, and Greenwich.
Corporate investors are also contributing to the softening market by adding new rental properties to the supply, increasing competition and providing more options for tenants. While rent inflation has slowed across the capital, the outer London boroughs, where rents are lower than the city average, are still experiencing relatively higher growth rates, led by Merton and Havering.
Landlords Re-evaluate Portfolios as Market Normalizes
As the rental market begins to cool, some landlords are opting to sell properties that were previously rented out. This trend is particularly pronounced in London and the South East, where higher mortgage rates and lower yields are making it difficult for landlords to refinance with larger mortgages. High-rate taxpayers, in particular, are finding it challenging to make buy-to-let investments work with a loan-to-value ratio of over 50% in London, especially as property prices stagnate.
Despite these challenges, rental properties continue to generate strong cash flow, making them an attractive investment. However, the focus for investors is shifting from leveraging debt and capital gains to prioritizing steady cash flow returns.