Rental cost surge has ended, declares Zoopla, yet real estate agents flag potential hardships for renters if property owners persist in selling properties.
Rent Boom Finally Over: Zoopla's Fresh Findings
Good news for renters! After three long years of skyrocketing rental prices, it seems that things are finally cooling down, according to the latest data from Zoopla.
The average rent for new lets has swelled by a mere 2.8% over the previous year, marking the lowest rate of rental inflation since July 2021 and a significant drop compared to the 6.4% increase the year prior. As a result, the average monthly rent now hovers around £1,287, a £35 increase over the past year.
This rental market slowdown is the result of weaker rental demand, soaring affordability pressures – not an increase in supply. In fact, although there are 17% more homes available on the rental market compared to the previous year, this supply remains 20% lower than pre-pandemic levels.
The weaker rental demand can be attributed to several factors. Lower migration into the UK for work and study, caused by a 50% decline in long-term net migration last year, is a major factor, as well as stability in mortgage rates and better access to mortgage finance for first-time buyers, the vast majority of whom are renters.
Recent changes to bank affordability assessments are making it easier for renters with higher incomes to secure mortgages, easing demand at the upper end of the rental market.
As for the regions, rental growth has slowed across the board: Yorkshire and the Humber were hit hardest, with an 11% drop in rental growth, followed by Scotland, where the rate of growth slowed from 9.1% to 2.4% due to affordability pressures and the removal of rent controls. Moreover, rental growth has slowed the most in Yorkshire and the Humber, with sharp slowdowns also recorded in Scotland following the removal of rental controls in April.
In contrast, rents continue to climb quickly in more affordable areas adjacent to large cities such as Wigan and Carlisle. The number of postal areas where rents have risen by over 8% per year has dropped from 52 a year ago to just five today.
Although rental growth may have slowed, many industry experts feel that upward pressure on rents is likely to persist, particularly if landlords continue to exit the sector. Tom Bill, head of UK residential research at Knight Frank, states that while some demand has transferred to the sales market as mortgage rates edge lower, numerous landlords are still selling due to tougher regulatory and tax landscapes.
Greg Tsuman, managing director for lettings at Martyn Gerrard Estate Agents, views this news as a temporary reprieve rather than an end to the era for the rental market, as the Renters' Rights Bill is set to come into force over the next 12 months, potentially further intensifying pressure on rents if landlords perceive added risks surrounding the repossession of their property and void periods.
- Despite the rental market slowdown, experts predict that upward pressure on rents may persist, especially if landlords continue to exit the sector due to tougher regulatory and tax landscapes.
- The weaker rental demand can be linked to lower migration into the UK for work and study, stability in mortgage rates, and better access to mortgage finance for first-time buyers, the majority of whom are renters.
- Although there are more homes available on the rental market compared to the previous year, the supply remains 20% lower than pre-pandemic levels, suggesting that this slowdown is primarily due to weaker rental demand rather than an increase in supply.
- Recent changes to bank affordability assessments are making it easier for renters with higher incomes to secure mortgages, potentially easing demand at the upper end of the rental market and impacting the housing-market and personal-finance.
- In the real-estate industry, investing in property in areas adjacent to large cities, such as Wigan and Carlisle, might still be profitable, as rents continue to climb quickly in these more affordable locations.
