With the number of enquiries per home to rent still double pre-pandemic levels, the supply-demand gap in buy-to-let continues to push up UK rents.
The outlook for the UK private rented sector shows only minor change as we start the year, according to the latest Zoopla Rental Report, which believes that despite a general slowdown in the rapid price acceleration of the past three years, 2024 will still end with higher rents than where it started.
It puts this largely down to not enough growth in the supply of rental housing in the UK to keep up with demand. That being said, the average letting agent now has 12 homes for rent, which is a fifth higher than this time last year – a sign that stock is moving in the right direction.
But, says Zoopla, the number of properties available to rent is still below the pre-pandemic average. What’s more, more than half of privately rented homes are now in the £1,000+ per month bracket, with the average across the UK now being £1,223 per month.
This means UK rents are now 7.8% higher than they were 12 months ago, continuing their upward trajectory. However, a year ago, annual growth sat at 11%, which Zoopla points out is a slowdown caused by a cooling labour market, the receding effects of Covid, and slightly better mortgage rates for first-time buyers.
Average UK rents skewed by London
London has seen by far the steepest fall in rental prices over the past year, which has pulled down average UK rents fairly significantly. Taking the capital out of the equation, UK rents have remained steady, with some locations such as the north east, south west, south east and the east seeing prices rise over the past year.
By contrast, London’s annual rental growth was at a huge 15.3% last year, but this year it plummeted to 5.1% – the lowest in the country – according to Zoopla’s figures. While this still puts rental price rises in positive territory, it shows a rapid slowdown, potentially due to the cost of living crisis.
The report says: “The balance between supply and demand has narrowed the most in London, with demand 30% lower than a year ago and available supply increasing by the same amount.”
In the north west, rental price growth only dipped marginally, from 10.6% in January 2023 to 9.8% in January 2024.
More rental supply needed
The need for landlords in the UK private rented sector is very high, with Zoopla pointing out that this situation needs to be rectified to prevent UK rents from surging once more.
Despite the improvement in the number of rental homes on the market, the report points out that there are still -28% less homes for rent per agent now than the pre-pandemic (2017-2019) average.
When looking at the rate of growth for UK rents compared with average earnings, affordability in the market has been decreasing as rents have soared.
Between 2016 and 2021, UK rents increased by just 4% over the five-year period, which Zoopla puts down to weaker demand post-Brexit, growth in supply pre-2016, and easier access to homeownership thanks to low mortgage rates. Since then, though, demand has increased alongside mortgage rates, while supply has been stagnant.
As a result, more potential first-time buyers have remained in the rental market, adding pressure to the already limited number of homes on offer, and this has pushed rents higher and higher.
Zoopla concludes: “The clear conclusion is that the best way to improve affordability is to boost rental supply. More supply will continue to come from the new build sector, but the big needle mover would be more investment by private landlords.
“This is currently looking unlikely and further rationalisation of landlord portfolios in the face of higher mortgage rates and growing regulation will offset any increase new investment in rental supply.”
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