February 20

Rental Growth Peaks: Shift in Market Trend


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In January, a notable trend emerged in the rental market across Britain, with newly let properties experiencing a modest 8.3% year-on-year increase in average rents. This marks a significant shift, representing the slowest pace of growth observed in the past 13 months. Interestingly, it also signifies the first instance in the last six months where the growth rate dipped into single digits, highlighting a potential stabilization in the rental sector.

The data, sourced from lettings agency Hamptons, provides valuable insights into the evolving landscape of the rental market. According to the agency’s findings, last month saw a notable change in the dynamics, as 59% of landlords managed to secure higher rents for new tenants. This figure represents a noteworthy decline from the peak observed in January 2022 when 81% of landlords achieved higher rents, as well as a slight dip from the 79% recorded in January 2023. This shift suggests a potential recalibration in the market dynamics, prompting landlords to adapt to changing conditions.

In the current rental market landscape, there has been a significant uptick of 34% in the availability of rental homes compared to the corresponding period last year. However, when juxtaposed with market conditions in 2019, there’s a notable decrease of 43%. These statistics from Hamptons shed light on the evolving dynamics of the rental sector. Examining the period from August 2023 to January 2024, it becomes evident that the deceleration in rental growth is more pronounced in London, influencing the overall pace of rental growth in eight out of the 11 regions across Britain.

Despite the moderation observed, Hamptons offers a forward-looking perspective, predicting that rental growth is poised to remain resilient, continuing at a steady rate that outpaces inflation for the remainder of 2024. This forecast suggests that while the market is experiencing a slowdown from the record levels seen previously, it is expected to maintain a robust performance, indicating a continued demand for rental properties in the coming months.

In the period spanning from August to January, the landscape of annual rental growth in London underwent a substantial transformation, experiencing a notable deceleration from 17.1% to 8.1%. This signifies a significant shift, marking the slowest rate of rental growth observed in the capital over the past two years. This downturn has consequential effects, notably fewer landlords managing to secure higher rental rates when in the process of re-letting their properties.

Delving deeper into the dynamics, it becomes evident that a distinctive trend has emerged in the rental market during the past two years. The surge in rent increases has been particularly propelled by landlords who own smaller homes. This phenomenon is reflective of a broader socioeconomic context, where tenants, grappling with the challenges of a cost-of-living squeeze, exhibit a heightened preference for more budget-friendly properties. This shift in demand dynamics underscores the impact of economic factors on the rental landscape in London.

In the previous year, there was a notable disparity in the re-letting dynamics of different property sizes, with 83% of one-bed homes experiencing a rent increase compared to 67% of four-bed homes. As we transition into early 2024, this gap has largely diminished, as similar increases are now observed across all property sizes.

Despite this evening out, the percentage of landlords successfully securing higher rents persists above the pre-pandemic average. This trend indicates that the upward pressure on rents has not completely subsided. Looking back at the five-year period from 2015 to 2019, the data reveals that, on average, just under half of landlords could secure a higher rent when re-letting their properties. During this timeframe, rental growth often aligned with or lagged behind the rate of inflation, highlighting the ongoing impact of economic factors on the rental market.

Aneisha Beveridge, Head of Research at Hamptons, highlights that the zenith of rental growth might have been reached last summer, with a decline in landlords raising rents subsequently. The monthly increases, in terms of cash, have shifted from triple to double figures. The surge in mortgage rates kickstarted two years of unprecedented rental growth, as landlords, concluding fixed terms, passed on higher costs to tenants through increased rents. However, with over two years elapsed since the initial Bank of England rate hike, augmented rents, coupled with broader price escalations, have imposed a tightening financial constraint on tenants.

While 2024 signals a potential attenuation in the upward pressure on rents, persistent challenges for landlords, including diminished returns and increased time and financial burdens resulting from rental reform, have constrained the influx of new landlords. This scenario hints at rental growth remaining above inflation levels throughout the year, reflecting a complex interplay of economic factors influencing the property rental market.



Generation Rent, Hamptons, Lettings Market UK, Rental Growth Peaks: Shift in Market Trend

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