Renters are not going to be given much relief any time soon, according to a new report. And while London rent might not climb so steeply as the rest of the country over the next five years, that’s simply because prices are already so high that tenants have hit an ‘affordability ceiling’ where they are already spending two fifths of their income on rent.
A new forecast by Savills says that UK rents will increase by 18 per cent over five years, including four per cent in 2025.
London rents will rise by 14.2 per cent by 2029 and increase by 2.5 per cent next year.
While tenant demand has come down from its record highs of 2021 and 2022, it remains at elevated levels, according to RICS. At the same time, the latest listings data indicates that the number of available rental listings per active letting branch was 16 per cent below their 2018-19 level in September.
As a result, properties are letting 20 per cent faster in 2024 than during 2018/19, and there is further upward pressure on prices.
Rental forecasts (source: Savills, Oxford Economic):
2024 |
2025 |
2026 |
2027 |
2028 |
2029 |
2025-29 |
|
|---|---|---|---|---|---|---|---|
UK rental growth |
4.0% |
4.0% |
3.5% |
3.0% |
3.0% |
3.0% |
17.6% |
London rental growth |
1.5% |
2.5% |
2.5% |
2.5% |
3.0% |
3.0% |
14.2% |
UK income growth |
2.9% |
+2.9% |
+2.6% |
+2.5% |
+3.1% |
+3.0% |
15.0% |
“High demand and low supply have been the influence behind the significant rental growth seen over the past few years. At a national level, this pattern looks set to continue with rents expected to rise above incomes again,” says Guy Whittaker, research analyst at Savills.
“It is challenging to see where an increase in rental supply will come from in the next couple of years. The increase to the existing Stamp Duty Land Tax surcharge for second homes will likely dampen demand from new buy-to-let investors, and it will prevent some existing landlords from expanding their portfolios.
“The potential requirement to upgrade EPC [Energy Performance Certificate] ratings by 2030 may see some leave the sector altogether, particularly in markets where the upgrades required would exceed an entire year’s rental income. In those cases, it may make more financial sense to sell.”
Strong rental growth has stretched the finances of those living in the rental sector, limiting the capacity for further increases in some markets, specifically London: rental prices grew by four per cent nationally in the 12 months to September 2024, while London rents grew by just 1.5 per cent.
Nationally, Savills expects the imbalance of demand over supply will continue to override affordability in the short term, pushing up rents. Looking further ahead, Savills expects rental growth to be more aligned with income towards the end of the five-year period.
But in London, the market is already experiencing the drag effect of affordability. With Londoners spending as much as 43 per cent of their income in 2023, an inflection point appears to of been reached. It’s getting to a point where there is just no more money people can spend.
“Slower rental growth through 2023 has led to a slight easing of affordability pressures in London. We expect that this trend will continue in the near term with rental growth of 2.5 per cent in London in 2025, against income growth of 2.9 per cent,” Whittaker says.
“However, we expect to see more landlords exit the market, further eroding supply, and affordability will once again take a backseat. This would mean that rental growth could be stronger than we have currently forecast.”
Life is not getting any easier for renters in the capital. Read our story on the calls to tackle the ‘rental affordability emergency’.
