2023 was a record-breaking year for rental growth. The average rent on a newly let property in Great Britain rose 10.2% year-on-year in December, marking the strongest end-of-year growth since our records began in 2014 and surpassing December 2022’s previous record of 7.7%. This cost the average tenant who moved into a new home an average of £124 a month more in rent, equating to an extra £1,488 each year.
Rents have risen faster than inflation (CPI) for the last nine months. Between March 2023 and November 2023 (when the latest CPI data is available), rental growth outpaced inflation by an average of 3.5% each month. This reversed the trend seen nine months previous when inflation reached a 41-year high. Pre-Covid, however, rents were rising at a more sustainable average of 1.1% faster than inflation each year.
While the pace of rental growth has cooled a little from its 12.0% peak in August, it hasn’t slowed as quickly as inflation and there are few signs that it’ll significantly slow any time soon. The rise in rents predominantly reflects higher landlord costs coupled with a lack of homes available to rent, which is unlikely to change significantly in the short to medium term.
On a regional basis, tenants in the East of England faced the biggest rent hikes. The average rent on a newly let property in the East of England hit £1,299 pcm in December, a record 13.3% or £153 pcm more than 12 months ago. Rents in Greater London, the Midlands and the North of England also saw double-digit hikes in 2023.
Looking ahead, as mortgage rates continue their downward path, some of the upward pressure on rents should reduce. This will predominantly occur because fewer landlords will face such steep increases in remortgaging costs as those who refinanced in 2023. Lower rates might also enable more renters to become homeowners, reducing demand.
Even so, the pressures in the rental market are so embedded that rents are likely to continue rising much faster than the pre-Covid average (2.6%) over the next few years. We’re forecasting rents on newly let properties across Great Britain to rise 7% in 2024, followed by 5% in 2025 and 5% in 2026.
