Zoopla’s latest rental market update shows a 10.5% annual rent increase, down from 12.2% a year ago. However, rental inflation has been in double digits for 18 months, with tenants paying £2,800 more than in 2020.
Despite rent controls, Scotland saw the fastest rent growth at 12.7%, as landlords seek higher rents for new lets. The UK rental sector faces low supply, high demand, and declining affordability.
Demand for rentals is moderating, but low supply continues to drive rent increases. Demand for rental properties is down 20% from last year but still 51% above the five-year average. The number of available rental homes increased 20% from last year but is 30% below the typical level for this time of year.
Average rents have risen by £110 per month in the past year, equivalent to an annual increase of £1,320. Over the last three years, new let rents have increased by an average of £2,772 annually.
Higher mortgage rates have made buying more expensive, leading more potential buyers to opt for rentals. First-time buyer mortgage payments at 5.5% rates exceed rental costs, with southern England experiencing the greatest impact.
The ongoing supply-demand imbalance is unlikely to change in 2024. Rental growth will depend more on affordability and renter adaptations to higher rents than significant shifts in supply or demand.
The market snapshot suggests that rising rental costs may slow demand and growth rates. However, due to the substantial supply-demand gap, rental growth will decrease more gradually. To significantly reduce rental growth to around 5.0% per annum, low supply would require a weaker labor market, reduced immigration, and lower mortgage rates.
The UK’s rental market displays regional variations, with Scotland leading in rent growth at 12.7%, even with rent controls in place. Despite a 20% dip in demand compared to the previous year, rental demand remains 51% higher than the five-year average. However, the supply side presents challenges, as the number of available rental homes increased by 20% from the previous year but still falls short by 30% for this time of year.
Over the past year, average rents have surged by £110 monthly, equivalent to an annual rise of £1,320, while new let rents have increased by an average of £2,772 annually over the past three years. Increasing mortgage rates have prompted more prospective buyers, particularly in southern England, where first-time buyer mortgage payments at 5.5% rates surpass rental costs. Despite a moderation in demand, the ongoing supply-demand imbalance is anticipated to persist in 2024. Rental growth will hinge more on affordability and tenant adjustments to higher rents rather than significant shifts in supply or demand. Achieving a substantial reduction in rental growth to around 5.0% per annum would necessitate a blend of factors, including a weaker labor market, decreased immigration, and lower mortgage rates.
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