The average rental price for a newly let property is nearly 10% higher than a year ago, but there are signs that the UK is now past peak growth in rents, according to an index.
The average UK rent stands at £1,201 per month, marking a 9.7% increase on a year ago, according to Zoopla’s December report.
London has recorded the biggest slowdown in annual rental growth over the past year, down from 17% a year ago to 9%, the report said.
The volume of asking-price reductions is particularly high in London – 10% of rental listings in November 2023 had asking-price reductions of more than 5%, according to Zoopla’s data.
Meanwhile, the proportion across the rest of the UK has also jumped to 7%, the highest it has been for more than five years, Zoopla said.
The UK is past peak rental growth which will be welcome news to renters— Richard Donnell, Zoopla
However, annual growth in rental prices in Scotland continues to gain momentum and stands at 12.9% higher annually, up from 11.4% a year ago.
Rents in Edinburgh are 15.2% higher than a year ago and in Glasgow they are 13.2% higher annually, Zoopla said.
Northern England locations such as Manchester, Bolton, Derby and Newcastle are also seeing strong demand and greater headroom for rents to increase relative to earnings, the report added.
Zoopla expects to see a slowdown in rental growth over 2024 but it said this will be kept in check by an ongoing scarcity of supply due to low levels of new investment in the face of more regulation and higher mortgage rates.
The website expects annual UK rental growth to halve to 5% by December 2024 with growth in London of 2% – the lowest level since 2021.
Zoopla’s index uses asking rents but the figures are adjusted to reflect rental prices achieved.
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.”
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— Richard Davies, Chestertons
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.”
