Average UK rents for new lets are 3.9% higher over the last year, the lowest rate of growth since August 2021, latest research from Zoopla’s Quarterly Rental Market Report reveals.
The slowdown is down to a narrowing in the imbalance between supply and demand over 2024 and growing affordability pressures on renters in areas with high rents.
The annual cost of rent has increased from £12,000 in 2021 to £15,240, an increase of £3,240 (27 per cent) outpacing the growth in earnings (19%) over the same period.
Rental inflation has slowed across all regions and countries over the last 12 months apart from Northern Ireland, where they are rising off a low base.
ABOVE-AVERAGE
Rents continue to rise at an above-average pace in more affordable markets and are slowing the most in areas with the highest rents.
London has recorded the greatest slowdown, with average rents 1.3% higher over the last year, down from highs of 8.7% a year ago.
London also has the highest rents, averaging £2,190 per month which is 1.7x (70 %) higher than the UK average.
Rents are rising fastest in Northern Ireland (10.5%) and the North East (8.7%), the two areas with the lowest average rents of £801pcm and £732pcm respectively. Rents in Northern Ireland have underperformed the UK in recent years and are growing off a low base.
RACING AHEAD
With more renters than there are homes to rent, renters are seeking out the best value for money. This means the impetus for rental growth is being driven from markets with lower rental values and the lower end of the rental market in major cities.
In London, rents are 3% – 6% higher than last year in cheaper areas of outer London, led by Havering (5.9%) and Barking & Dagenham (5.2%).
Rental growth is less than 1%in inner London areas, led by Tower Hamlets (0.3%), Greenwich (0.5%) and Kensington & Chelsea (0.8%).
Outside of London, rents are rising fastest in pockets outside major cities such as Rochdale (11.9%), Blackburn (10%), Birkenhead (9%) Burnley (8.9%) and Newcastle (8.7%). This largely reflects ‘catch-up’ rental growth as renters seek out areas with better value for money in and around major cities.
Changes in rents at the local level reflect local patterns of demand and supply.
Rental growth has stalled in Nottingham, for example. It is the only city where the supply of homes available to rent has jumped over the last year, providing renters with more choice. Rents are unchanged over last year, down from +10.4% growth a year ago.
While the number of homes available to rent is 12% higher than this time last year, Zoopla doesn’t expect any big increase in the number of homes for rent over 2025.
The number of homes for rent remains below pre-pandemic levels in all regions apart from the East Midlands.
Private landlords continue to sell off rented homes at a steady pace in the face of greater regulation and higher borrowing costs, despite what have been sizable increases in rents.
Despite this, Zoopla believes that the peak of the private landlord sell-off has now passed.
The portal says that one bright spot has been more corporate investment in new build rented homes – but even in these instances, the pace of new development has slowed in the face of higher borrowing costs and more regulation.
Zoopla expects a continued mismatch between supply and demand with average rents for new lets to increase by 4%t over 2025 taking the annual rental cost to £15,850. Rental growth in London and larger cities will lag behind the UK average as a result of growing affordability pressures and further modest growth in supply.
RISING FASTER THAN EARNINGS
Richard Donnell, Executive Director at Zoopla, says: “Private renters moving home have faced rents rising faster than earnings over the last three years.
“The number of rented homes hasn’t grown since 2016 creating scarcity for renters at a time when demand has boomed on a strong labour market and the rising cost of home ownership. Rental growth has slowed but we expect an ongoing lack of rental supply to keep an upward pressure on rents.
“The ambitions to expand home building are important as the quickest way to ease the pressure on renters is to boost the supply of private and social rented homes.
“Private landlords will continue to play an important role and should be encouraged to remain in the market.”
ALL-TIME HIGHS
Adam Jennings, Head of Lettings at Chestertons, says: “Over the past few years, London rents have been driven to all-time highs by an increasing number of tenants unable to buy due to high property prices in London and high mortgage rates.
“Now that interest rates have fallen and changes to stamp duty are looming, aspiring homeowners feel more motivated to take their first step on the property ladder.
“As a result, London’s rental market is rebalancing and providing more favourable conditions for remaining renters.”
WORK TO BE DONE
Angharad Trueman, ARLA Propertymark President, says: “Whilst it is encouraging for renters to see price rises starting to slow down, plus data showing the gap between supply and demand starting to narrow too, there is still much work that needs to be done to ensure that the private rental sector can deliver stability for both landlords and tenants.
“This ideally should include revisiting tax structures and regulations that are deterring long term investment in the private rental market.
“It is vital there is robust provision that helps ensure the supply of rental homes grows in line with predicted increases in demand.
“The Renters’ Rights Bill that is currently being debated in Parliament, which will pave the way for the biggest overhaul in regulations for the rental market in over thirty years must provide fairness and balance moving forward for all involved.”
