The desire for space has been the property trend of the pandemic. While smaller city properties have fallen out of fashion, larger family homes have been in high demand. But with rents on larger homes currently rising at twice the rate of smaller properties, it is now more costly for tenants to trade up than ever before.
In October, four-bedroom properties recorded the strongest rental growth. The average rent on a four-bed home in Great Britain rose to £1,949 pcm, up 10.6% on the same time last year and nearly triple the rate of growth of a one-bed which rose 3.7% year-on-year to stand at £875 pcm.
The gap between the monthly rent of a one and two-bed home now stands at its widest point since our records began in 2013. Strong rental growth has meant that the average one-bed in Great Britain now costs the same amount as a two-bed did in 2016.
This has meant that the cost of trading up from a one-bed to a two-bed rental property has doubled over the last three years. Last month it cost £144 or 16% more to rent a two-bed home, more than double the gap (£68 or 8%) in October 2018. This equates to an extra £1,728 each year.
The cost of moving from a two-bed to a three-bed has also risen. Last month a tenant would have had to pay an extra £142 or 14% each month to trade up from a two to three-bed home, £30 more than in October 2020. This will cost the average tenant an extra £1,705 each year. The average two-bed home now costs the same amount to rent each month as a three-bed did in 2018.
London is the costliest region in the country to trade up, both in absolute and percentage terms. Last month the average two-bed in the capital cost £567 or 42% more each month than a one-bed. Meanwhile the North East is the cheapest region to swap a one-bed for a two-bed (+£102 or +20%).
The pandemic has marked the first time that we’ve seen such a big divergence in rental growth by property size. Usually, rental growth remains fairly uniform no matter how large the home is, but over the last year the gap between rental growth on smaller and larger properties has widened to around 5%. But as more tenants make their return to city centres, many seeking smaller properties, it’s likely that the gap will begin to shrink in the new year.
There are few signs that rental growth is slowing as the year ends. Nationally rental growth remained resilient in October, with rents rising 7.9% over the last 12 months, the fourth largest annual increase since the lettings index began in 2013.
Outside the capital, rents continued to rise in double digits for the fifth month running, with average rents up 11.0% on the same time last year. With 47% fewer homes available to rent than at the same time in 2020, rental growth is set to remain buoyant into 2022.
Rents rose faster in the South West than anywhere else in the country, up 15.3% annually. October marked the third straight month that rents grew faster in the South West (15.3%) than in any other region. It was also the fifth month in a row that all three southern regions outside of London (the South East, South West and East of England) recorded double-digit growth.
Meanwhile annual rental growth in Inner London is poised to turn positive following 21 consecutive months of falls. Rents in Inner London fell 0.1% in October, the smallest drop recorded since the onset of the pandemic. Despite this, rents here remain 20% below where they stood on the eve of the pandemic, up from a trough of 30% earlier in the year. In cash terms, this 20% fall means the average property in Inner London cost £530 less than it did during the peak.
As rents in London continue to recover their pre-pandemic momentum, this will serve to bump up the headline rental growth figure nationally.
