Average UK rent rises 10% in a year, but rental market 'past its peak' with signs increases will slow in 2024

12 December 2023, 07:48

The UK rental market 'may be past its peak'
The UK rental market 'may be past its peak'. Picture: Getty

By Kit Heren

The average rental price soared nearly 10% in a year, but there are signs that a slowdown could be on the way.

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The average monthly rent paid for a property in the UK is £1,201, up 9.7% from a year previously, according to Zoopla.

The economy reopening, record immigration, the strength of the labour market and high mortgage rates have all helped to increase rents dramatically since the pandemic.

But the end-of-Covid is wearing off, employment growth is slowing and there are signs mortgage rates are coming down.

And in relatively good news for many Londoners, the capital could be set to act as a "drag" on the overall UK rental market, with rental growth slowing to 9%, from 17% a year ago.

Read more: London rents 'could hit £2,700 a month' with costs 'spiralling' out of control

Read more: 25 renters chasing each home, as average monthly rent reaches record levels after soaring 12% in a year

Rents continue to rise
Rents continue to rise. Picture: Alamy

Some 10% of rental listings in London in November 2023 had their asking-price cut by more than 5%, according to Zoopla's report.

Across the whole of the UK, 7% of properties had asking-price drops of 5% or more, which is a five-year high.

But Scotland and northern England are still driving higher rental growth.

Rents in Scotland were up 12.9%, an increase from an 11.4% growth rate last year. In Edinburgh, rents rose by 15.2%, while in Glasgow they increased by 13.2%.

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Manchester, Bolton, Derby and Newcastle all saw large increases in average rent, with more to room to grow, Zoopla said.

Rental growth should slow down by 2024, Zoopla said - but scarcity of supply due to low levels of new investment in the face of more regulation and higher mortgage rates will keep this in check.

Annual UK rental growth will halve to 5% by December 2024 with growth in London of 2%, which is the lowest level since 2021, Zoopla said.

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Richard Donnell, executive director at Zoopla said: "The UK is past peak rental growth which will be welcome news to renters who have seen rents rise by almost a third (31%) over the last three years. London will lead the slowdown, acting as a drag on the UK growth rate.

"The rental market has been stuck in a period of static supply and strong demand which has pushed rents higher.

"Demand has been driven by the strength of the labour market, the reopening of the economy after the pandemic lockdowns, record immigration and higher mortgage rates, making it harder for would-be first-time buyers to buy a home.

"Faster growth in earnings has supported a faster pace of rental growth. The supply-demand imbalance in rented housing is not going to disappear in 2024, however, the market is set to become more balanced than it has been over the last three years.

"The slowdown in rental growth over 2024 will be down to a weaker labour market, slower earnings growth and growing affordability pressures limiting the pace at which rents can rise, particularly in southern England.

"Rents have room to rise above the UK average in regional cities where affordability is less of a constraint, but this won't be the case indefinitely."

Rent growth is set to slow
Rent growth is set to slow. Picture: Alamy

Richard Davies, from London-based estate agent Chestertons, said: "Rental growth has been driven by an imbalance between limited supply of new rental properties coming to the market and a growing population of renters.

"We believe that rents are likely to rise further over the next two years as employment remains high and competition for rental properties is sustained.

"However, we will see more supply coming to the market as rising yields have started to encourage more landlords back into the market and some financially-stretched homeowners are choosing to put their properties on the rental market in reaction to the jump in mortgage repayments.

"Therefore, whilst we do not foresee a change in demand, the addition of new supply is likely to have a dampening effect on rental growth over the next two years.

"As a result, we forecast a 5% increase in rents across the UK and London in 2024, followed by a drop to 3-3.5% in 2025 as the accumulation of new supply begins to soak up demand."

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