Rising rental supply tempers price growth, but pressures persist for tenants and landlords
The average advertised rent for newly listed properties outside London has increased by 1.5% this quarter, rising £20 to a record £1,385 per calendar month, according to property listing platform Rightmove. This marks the third consecutive quarter in which a new high has been set.
On an annual basis, rents are now 3.1% higher, the slowest yearly growth since the third quarter of 2020.
In London, average advertised rents have also reached a new peak, climbing 0.9% this quarter to £2,736 per month. However, the annual increase in the capital is now just 1.6%, a rate not seen since the second quarter of 2020.
The number of rental properties available has grown by 9% compared with last year. This increase in supply has contributed to a moderation in annual rent rises both nationally and in London. Despite this improvement, the volume of available homes remains 23% below the level seen in 2019, though this is the closest the market has come to pre-pandemic conditions in four years.
The rate at which new rental listings are entering the market has slowed, now standing only 1% above last year’s figure. Meanwhile, tenant demand has dropped by 14% compared with the same period last year.
Recent changes to stamp duty for rental property purchases, introduced last October, and speculation about a possible national insurance levy for landlords in the forthcoming Autumn Budget, are thought to be influencing investment decisions. The anticipated Renters’ Rights Bill is also contributing to uncertainty among landlords.
A recent survey found that one in three landlords are considering leaving the sector in the future, with two-thirds reporting they feel unsupported by government policy. Fewer than half said they are fully informed about the Renters’ Rights Bill and prepared for its implications.
Affordability remains a significant challenge for both tenants and landlords. Although average earnings have risen by 5% over the past year, exceeding the pace of rent increases, the proportion of income required for rent has grown to 44%, up from 40% five years ago. For those aiming to buy their first home, the average deposit required has increased by more than £5,000 in five years, now standing at £45,374.
Landlords seeking to expand face higher borrowing costs. The average interest rate on new buy-to-let mortgages is 4.87%, according to UK Finance. This is lower than last year’s 5.21% but remains well above the 2.93% rate prior to the 2022 mini-Budget.
In Rightmove’s survey, nearly a third of landlords indicated that higher mortgage rates were affecting their expansion plans, while 17% said these rates might prompt them to reduce their portfolios.
“The majority of landlords are looking to stay in market and even grow their portfolios which is positive for tenants, but there are clearly challenges for those looking to invest in rental property,” said Colleen Babcock (pictured right), property expert at Rightmove. “Sustained high mortgage costs mean landlords need to make sure purchases are viable, and uncertainty around legislation like the Renters’ Rights Bill and what may or may not be in the upcoming Autumn Budget isn’t helpful when looking to make financial investments.
“Landlords who were considering selling up over the next year told us that legislation changes were their biggest source of frustration. The government needs to consider this when setting its policy agenda over the next 12 months, otherwise we may see more landlords choose to leave the sector which will be to the detriment of tenants.”
Daniel Fisher, head of lettings at John D Wood & Co., added that tenant demand has eased due to wider economic and political uncertainty that makes people more cautious about moving.
“Many businesses are scaling back relocations and some renters are leaving London altogether,” he said. “This has led to more re-let properties coming to market, even as the overall number of landlords declines.
“At the same time, many landlords are hesitant to invest amid limited capital growth, shifting tax rules, and ongoing uncertainty around the Renters’ Rights Bill and the Budget. The result is a slower, more cautious market that’s likely to remain uneven over the next year or so – though this also presents opportunities for well-capitalised landlords to expand as others exit, and for tenants to benefit from a wider choice of homes.”
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