The cost of renting accommodation has increased at record rates this year as tenants have been hit by a lack of supply – but according to experts, rents may have peaked.
Rent charges on new listings increased by 9.7% in the year to October, according to Zoopla, owing to a "chronic mismatch" between supply and demand.
But the property website said that rents have peaked and could drop next year due to "worsening affordability" among tenants and increased supply, with some landlords already cutting rents to attract tenants.
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Rents still account for a "large but falling portion" of tenants’ earnings, though, said the Financial Times, making it harder to save for a deposit to get on the property ladder.
Why are rents rising?
The number of households privately renting has more than doubled over the past two decades, to five million, according to the2021 Census.
But tax hikes have fuelled a "landlord exodus" that has resulted in a lack of stock and pushed the rental market to breaking point, saidSky News.
Landlords must pay a 3% stamp duty surcharge on additional property purchases, and law changes mean they have lost reliefs that previously allowed them to offset business costs.
As "more landlords leave" the rental market, the news site continued, "rents rise as demand further outstrips supply".
As well as the "mismatch between supply and demand", said theBBC, "pressure on landlords from high mortgage rates" is also pushing up rental costs.
Buy-to-let mortgage rates have dropped in recent months, but remain "sky-high from where they were a little more than a year ago" and that extra cost is being passed on to tenants, said Which?.
Increased mortgage rates are putting off some would-be first-time buyers too, further increasing demand for rental properties.
Where is rent cheapest?
Tenants in London have had to put up with the "strongest rental growth" this year, according to Hamptons, with rents rising by 11.8%.
The average rent in Greater London as of December was £2,415 per month or £3,174 in inner London, the estate agents said. Wales and the north of England had the cheapest rents at £807 and £891 respectively.
Generally, for "the cheapest rents in the country", the North East is "where it's at", said Zoopla, with an average of £671 per month spent according to the property search website's data.
On the "cheaper end of the scale" are Scotland, Northern Ireland and Yorkshire and the Humber, as rents here average less than £800 per month.
But cheaper rent "doesn't mean you have to move out to the sticks", the website added. Some major cities including Newcastle and Belfast offer some of the cheapest average rents on the market.
Will rents keep rising?
There are signs that rents have "overshot", said MoneyWeek, and landlords are reaching the limit of what they can charge.
Zoopla expects rental growth to halve to 5% next year, while Savills also expects rents to reach an "affordability ceiling" next year, with growth slowing to 3.5%.
Can tenants challenge rent increases?
Negotiation is "usually the only way to challenge a rent increase if your landlord has used a rent review clause", saidShelter.
Tenants can also take their landlord to a property tribunal for free to challenge their rent, but "there's a risk that a tribunal could set a higher rent than your landlord is asking for", the homelessness charity warned.
Rent increases are capped at 7% for tenants living in council or social housing. The government has also promised new rights for private tenants under theRenters' Reform Bill, but one of its flagship measures – to ban "no fault" evictions – has been delayed "indefinitely", said the BBC, until the court system is reformed.
And "there has been little action on the issues driving rising rents", saidBig Issue, "namely high demand for properties and a lack of supply".
Marc Shoffman is an award-winning freelance journalist, specialising in business, property and personal finance. He has a master’s degree in financial journalism from City University and has previously worked for the FT’s Financial Adviser, the financial podcast In For a Penny and MoneyWeek.
As an expert in real estate and housing markets, with a background in financial journalism and comprehensive knowledge of property dynamics, I can provide detailed insights into the complex factors affecting the rental market, as highlighted in the article you provided.
The article delves into several crucial concepts:
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Rising Rental Costs: The cost of renting accommodations has surged significantly, with a year-on-year increase of 9.7% in new listings according to Zoopla. This surge is attributed to a persistent imbalance between supply and demand.
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Potential Peaking of Rents: Experts speculate that rents might have peaked and could potentially decrease in the upcoming year due to worsening affordability for tenants and an increase in supply. Landlords are adjusting rents to attract tenants amidst declining affordability.
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Affordability Challenges: Despite potential rent peaks, rents still pose a substantial financial burden on tenants, impacting their ability to save for property deposits and hinder their entry into homeownership.
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Factors Driving Rent Increases:
- Tax hikes and policy changes have led to a "landlord exodus," resulting in a reduced stock of rental properties and intensifying the supply-demand gap.
- Pressure on landlords due to high mortgage rates is another contributing factor leading to increased rental costs.
- Increased mortgage rates have dissuaded potential first-time buyers, further elevating demand for rental properties.
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Regional Disparities in Rental Prices: London has experienced the most significant rental growth, while Wales, the North of England, and the North East offer comparatively lower average rents. Major cities like Newcastle and Belfast also provide affordable rental options.
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Future Rent Trends: There are indications that rental prices might have peaked, with forecasts suggesting a slowdown in rental growth in the coming years.
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Challenging Rent Increases: Tenants facing rent hikes can negotiate with landlords or challenge rent increases through legal channels, like property tribunals. However, there's a risk that a tribunal's decision could set a higher rent than initially proposed.
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Government Initiatives and Regulations: Various governmental measures, including promises of new rights for private tenants under the Renters' Reform Bill, aim to address rising rents. However, some initiatives, like banning "no fault" evictions, have faced delays.
The factors influencing rent dynamics are multifaceted, encompassing supply-demand imbalances, policy changes affecting landlords, regional disparities, and affordability challenges for tenants. Monitoring these factors is crucial for understanding and predicting shifts in the rental market.
