Strong rental growth has pushed average rents into another £100 price bracket for the third time in just over two years. In October, the average rent on a newly let home in Great Britain rose to £1,204 pcm, passing the £1,200 mark for the first time. This has cost the average tenant an extra £960 per year in rent compared to last year.
Average rents passed the £1,100 mark back in September 2021, just 14 months ago. Meanwhile rents first crossed the £1k milestone back in June 2019, before dipping during Covid and re-passing that point again in August 2020, 15 months later.
So far this year, average rents in five regions have moved into a new £100 price bracket. Greater London was the latest, with rents passing £2,100 pcm for the first time in October 2022. This was driven by rents in Inner London reaching a new record high of £2,863 pcm, £1 pcm more than when rents in London’s priciest postcodes previously peaked (in October 2019). This now means that rents in every area of the country are above where they were at the beginning of Covid.
Since the eve of Covid (Jan-2020) rents have risen 19% across Great Britain, equating to an additional £2,351 a year. We’ve seen more rental growth since the beginning of Covid than we did in at least eight years prior. While nationally rents recovered to their January 2020 levels within eight months, in Inner London it took 30 months to bounce back.
In October, the average Inner London home cost 9% more to rent than it did in January 2020. Meanwhile the South West has seen the strongest growth since then, with rents up 32% or £265 per month.
Rapid rental growth over the last few years means that the average privately rented household in Great Britain is now spending 44.0% of their post-tax income on rent, the highest share since our records began in 2010. Two years ago, the average tenants spent 41.6% on rent, up from 39.2% in October 2012.
London remains the least affordable region, with the average rent taking up 62% of the average renting household’s post-tax income. However, weaker rental growth in the capital means that this has increased by just 1% since October 2020, the third smallest rise in the country.
However, the good news for tenants is that rental growth has slowed from its summer double-digit peak and looks likely to settle around the 5-6% mark by the end of the year. In October, rents across Great Britain rose 7.1% year-on-year, the fifth consecutive month of single-digit increases after annual rental growth peaked at 11.5% in May 2022. It also means that, unlike at the beginning of the year, rents are more closely tracking income growth which should soften the cost of living squeeze for tenants.
While the risks are mounting for future house price growth, these same risks are likely to bolster rental growth in the short-term. High mortgage rates will keep more would-be buyers in the rental market for longer, which is partly why demand is up 5% on last year’s record levels.
The cost of servicing a 90% LTV mortgage has risen 65% over the last year, meaning tenants are now spending a similar proportion of their income on rent (44%) as they would on a mortgage (36%). Landlords’ costs are also rising, which they’ll likely seek to pass onto tenants in the form of higher rents or sell up if they are unable to cover costs. This is why we think rents are still likely to rise 5.0% in 2023.