New figures indicate that the surge in rent prices, which hit a record high last year, is approaching an “affordability ceiling,” raising concerns about the sustainability of the current rental market dynamics. Landlords, capitalizing on increased demand and a shortage of rental properties, have seen continuous growth in their buy-to-let portfolios, enabling them to maintain high rents despite challenges such as reduced tax reliefs and higher mortgage rates.
However, tenants are now facing difficulties coping with the escalating cost of living, leading to a potential limit on how much more they can afford to pay in rent. The latest data from Rightmove reveals that during the fourth quarter of 2023, the average advertised rent for new properties outside of London reached a new record at £1,280 per calendar month. Although this marks the 16th consecutive quarter of record rental prices, the increase this quarter was the smallest since 2019, signalling a potential shift.
Christian Balshen, Rightmove’s lettings expert, notes, “We’re seeing more evidence that many tenants are reaching the point where they can’t afford to pay any more in rent, which is leading to reductions in advertised rental prices and means some properties are staying on the market for longer.”
The State of the UK Rental Market:
Factors such as higher buy-to-let taxes, falling house prices, and lower mortgage rates for first-time buyers are impacting the appeal of property investment. While rental returns remain high, landlords may not experience the double-digit gains they’ve been accustomed to.
According to Rightmove figures, advertised rents outside of London are now 9.2% higher than last year, but this is the lowest annual increase since 2021. In London, rents reached a new record of £2,631 in the final quarter of 2023, showing a slowdown in yearly increases from 12% to 6%.
The rental market appears to be slowing due to a decrease in tenant demand. Rightmove reports a 13% decline in tenant inquiries to letting agents compared to the same period last year, coupled with a 7% increase in new rental properties coming onto the market.
Will Rents Fall in 2024?
While the supply and demand imbalance remains a fundamental aspect of the buy-to-let market, early signs suggest that the annual pace of rental growth will further slow in 2024. Rightmove predicts a 5% increase in rents outside of London and a 3% increase in London by the end of the year, a significant drop from the double-digit growth seen in previous years.
Tim Bannister, Rightmove’s Director of Property Science, states, “The trend of rent growth gradually slowing continues, with an improvement in the supply and demand of rental properties having a big contribution to that. 2024 is the year we think there will be a much smaller increase in advertised rents of 5% outside of London, and 3% in the capital.”