Records are being rewritten in the rental market, with each passing month marking a fresh milestone. The spotlight is on the rate of annual rental growth on newly let properties in Great Britain (GB). In August, this rate soared to 12.0%, the fastest pace we've seen since the Hamptons Lettings index began in 2014.
This is only the fifth month in over a decade that annual rental growth has escalated to a double-digit pace, with four of these instances occurring in the past year. The August growth rate broke the previous record of 11.5% set in May 2022, with rents rising more during the last 12 months than they did between 2015 and 2019. Consequently, new tenants are now paying an average of £140 per month more than they were a year ago.
The average GB rent crossed another threshold last month, reaching the £1,300pcm mark for the first-time - just 11 months after surpassing the £1,200 mark, and 37 months after passing the £1,000pcm milestone. This equates to a rise of 29% or £296 a month since January 2020, the eve of the pandemic. Therefore, 68% of the rental growth over the last decade has occurred since the onset of Covid, with the average rent on a newly let home now costing £436 a month more than in August 2013.
While it seems unlikely, if annual rental growth continues at the current rate of 12.0%, it will take just under four years for the average monthly rent in Great Britain to pass £2,000pcm. However, if rents rose at the pre-Covid (2016-19) average of 2.0%, it would take a staggering 29 years.
The gap in rental growth between different property sizes has been closing, with the pace of growth for larger homes catching up with smaller homes. The average two-bedroom property passed the £1,200pcm mark, closely following the average one-bedroom property which hit the £1,000pcm mark four months prior.
Scotland broke its own record in August with a 13.4% rise in the average rent of a newly let property, the largest increase in over a decade. This growth has pushed rents in Scotland above the Midlands average (East and West Midlands) for the first time. Rents in Scotland also overtook the North of England average (North East, North West and Yorkshire & Humber) as recently as May 2022.
Despite the notable increases in Scotland, annual rental growth continues to be led by the capital, with London rents soaring 17.1% year-on-year. This is only slightly less than the 17.2% record which was set back in April. Rents in London have been rising at a double-digit pace in 16 of the last 18 months, costing the average tenant an extra £5,508 each year compared to March 2022. Over the last year growth has been stronger in the capital than elsewhere as rents fell more during the pandemic and continue to catch up.
Since the beginning of Covid, Scotland has seen the biggest rent rises with the average cost of a newly let property up 43% compared to January 2020. The North East followed Scotland with rents up 41% since January 2020 and the North West with 40% growth. At the other end of the scale, rents in Inner London have risen more slowly than elsewhere, up 17% on pre-Covid levels, followed by Wales where rents have risen by 19%.
There are signs that the upward pressure on rental growth may ease in the near future. The number of rental homes on the market carried on rising during August, up 30% on last year's record low - a sign that homes are sitting on the market slightly longer. Yet, the long-term decline in rental stock - down 39% compared to 2019 - combined with similar numbers of tenants looking to move will continue to underpin future rental growth.
While the current pace of rental growth is unsustainable long term, many mortgaged landlords are being squeezed just as tightly as tenants. Higher rents are only going some way towards helping mortgaged landlords’ balance their books, rather than boosting their profit. Consequently, higher mortgage rates have encouraged some landlords to conserve cash and invest beyond bricks and mortar. The 30,000+ fall in the number of outstanding UK buy-to-let mortgages since November indicates that more landlords are leaving the sector than joining. However, for tenants, this could mean being short-changed, adding fuel to the rental market.
Housing Market Forecasts 2023
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