The scale of mortgage rate rises kickstarted two years of record-breaking rental growth. As landlords have rolled off fixed terms, they’ve been partly feeding these higher costs through to tenants in the form of higher rents. But just over two years on from the first Bank of England rate hike, higher rents coupled with higher prices more generally have placed an increasingly tight straitjacket around tenant’s finances, curtailing their ability to pay more.
Average rents on newly let properties rose 8.3% across Great Britain in the year to the end of January 2024, the slowest pace for 13 months. This marks a change in tempo from 2023 when rental growth peaked at 12.0% last August and slowed slightly to 10.2% in December.
Last summer looks like it may have been the high watermark for rental growth. Since then, fewer landlords have been putting up the rent. Where they have, in cash terms, monthly increases have tended to be in double rather than triple figures.
January was the first time that rental growth ran at a single-digit pace during the last six months. Just two regions, the East of England and the West Midlands recorded double-digit rental growth in January, down from a peak of six regions last August.
Consequently, fewer landlords are securing a higher rent when re-letting their property. In January, 59% of landlords re-letting a home achieved a higher rent than they had previously, down from a peak of 81% in January 2022 and 79% in January 2023. Other landlords were able to achieve the same rent. Landlords in Yorkshire & The Humber were most likely to achieve an uplift, with 66% doing so.
The bulk of the rent increases during 2022 and 2023 were driven by landlords of smaller homes. This was a reflection of higher demand for cheaper properties in the face of a cost-of-living squeeze. Last year, 83% of one-bed homes were re-let at a higher price, compared to 67% of four-bed homes. In early 2024, the gap between these figures has for the most part now closed with similar increases seen across all property sizes.
However, the share of landlords able to achieve higher rents remains firmly above the pre-pandemic average. This suggests that the upward pressure on rents has not completely dissipated. During the five years between 2015 and 2019, an average of just under half of landlords (49%) were able to secure a higher rent when re-letting their property, with rental growth running alongside or even below the rate of inflation.
While the upward pressure on rents seems set to weaken in 2024, particularly since mortgage rates have come down, wider pressures on landlords mean rental growth will remain stubbornly sticky. Reduced returns coupled with the additional time and financial costs stemming from rental reform have squeezed the numbers of new landlords. This looks set to keep rental growth running ahead of inflation this year.
