Pressure on renters starts to ease as rents fall
For the past three years, renters across the UK have faced increasing financial pressure as rent prices surged well beyond earnings growth. However, recent data indicates that this upward trend may be slowing. Although rents are expected to continue rising, the rate of increase is set to decelerate. This shift brings a glimmer of hope to renters and presents new dynamics for landlords and investors.
Current Rental Market Overview:
Demand and Supply: Demand for rental properties has decreased by 39% over the past year from peak levels. Despite this drop, demand remains high,high,high,high, with 17 people competing for each available rental, double the pre-pandemic average. On the supply side, the number of rental homes per estate agent has increased by 17% year-over-year. This growth is partly attributed to corporate landlords purchasing new builds and slightly improved conditions for first-time homebuyers due to lower mortgage rates.
Availability Challenges: Although supply has increased, it still falls short of pre-pandemic levels. The average estate agent now manages a third fewer rental properties compared to before the pandemic.
Rents and inflation trends
General Trends: Rents for new lets have risen by 5.7% in the past year, reaching an average of £1,232 per month. This represents a slowdown, with rents increasing by just 1.6% in the first half of the year—the slowest pace since 2021. Projected trends suggest a 3-4% increase in rents for 2024, compared to 8% in 2023 and 11% in 2022.
City-Level Variations: There is significant variation in rental inflation across different cities. While some cities have seen rents decrease slightly, others, such as Bradford and Liverpool, continue to experience rapid rent increases. Areas like Rochdale, Doncaster, Sunderland, Southend, and Telford have reported rental inflation exceeding 4% in the first half of 2024.
London Market Dynamics:
Rent Declines: London, the UK's most expensive rental market, has seen rent decreases in a third of its boroughs during the first half of 2024. Notable declines have occurred in inner---east London areas like Tower Hamlets, Newham, and Greenwich. The high cost of renting in London is increasingly limiting rental inflation.
Corporate Investment Impact: The influx of new rental homes bought by corporate investors has helped moderate rent increases. However, affordability constraints continue to pressure the market. Rent inflation in outer London areas, where rents are still relatively lower, remains higher compared to the rest of the capital, with notable increases in Merton and Havering.
Landlord and Investment Perspectives:
Portfolio Adjustments: Some landlords are adjusting their portfolios by selling previously rented homes, particularly in London and the South East. This shift is driven by higher mortgage rates and reduced yields, making it challenging to refinance properties.
Investment Strategy Shift: The focus in property investment is shifting from leveraging debt and capital gains to emphasising cash flow. Despite the slower growth in rents, the underlying cash flow from rental properties remains strong, continuing to attract investors.
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