Will rents continue to rise?

Historically, rents rise in line with wages – often tracking inflation or rising at a slightly lower rate. Up until the pandemic, this averaged out at around 2-3% per year.

Since the start of 2020, we’ve seen rents in the UK rise at an extraordinary rate, mainly due to the huge imbalance between supply and demand with competition among tenants driving up prices. Average rents for new lets have gone up by a third in the last three years, with Zoopla’s figures for just the year to December 2023 showing:

• UK as a whole +9.7%
• London +9%
• Scotland +12.9%

The reason Scotland is seeing such high rent rises for new lets is because of the current rent increase cap of 3% per year for existing tenancies.

How and why have rents been able to rise?

Quite simply, tenants have found a way to afford them, by choosing smaller property or a different location – and it’s important to note that Zoopla’s figures are only for new lets. ONS data, which looks at average rents as a whole, including existing tenancies, shows that for the year to November 2023:

• Average annual rent growth was 6.2%
• Average annual wage growth was 7.2% with benefits typically rising at a higher rate

Despite the recent significant rent rises, English Housing Survey data shows that the percentage of income tenants spent on rent last year was actually slightly lower than a decade earlier: 34% in 2012-13 and 32% in 2022-23. However, if housing support is excluded, that figure rises to 37%, which does explain why many tenants will be feeling the pinch. 

Will rents keep rising?

Although the rate of growth is now softening, we expect rents to continue to rise over time in line with wage growth. Whenever there is an imbalance of supply and demand, rents will continue to increase while these rises are affordable.

For 2024, Zoopla anticipates a major slowdown in rental price growth, as affordability combined with the recent increases in the cost-of-living impacts demand and supply improves slightly.  London and other more expensive areas, where rents are highest, are expected to see the biggest drop, with annual growth in the capital predicted to be just 2% this year. 

Rightmove also reports that increasing numbers of tenants are reaching limits of affordability. Their data shows that in Q4 of 2023:

• Nearly a quarter of rental properties had a reduction in the advertised rent, compared with 16% in the same quarter last year
• Although advertised rents were over 9% higher than in December 2022, the last quarterly increase was just 0.2%

Rightmove’s prediction for this year is that rents will rise by 5% outside London and by 3% in the capital.

As always, these figures are simply averages and even at a regional level there can be significant differences from one area and type of property to another.

If you would like to discuss rents and affordability in your own area, just get in touch with your nearest branch and one of the team will be very happy to talk to you.