Wayne & Silver Estate Agents  _  Hampstead Estate Agents

What's happening to the cost of renting?

Published: 02/05/2023

With demand outstripping supply in the rental market, tenants continue to be hit with high rent

Tenants have suffered from soaring rents in recent years, with the prices paid to landlords hitting record highs.

The average UK monthly rent for newly let properties was £1,184 in March, up from £959 compared to a year before, according to the HomeLet Rental Index - which analyses data from letting agents in the private rented sector. However, the rate at which rental prices are going up does appear to be slowing down.
Here, Which? examines what's happening in the rental market and explains what might be on the horizon for tenants and their monthly payments.

How much is the average rent?
Rents have risen considerably in the last couple of years, and the average price that tenants pay their landlords monthly is now between £1,170-1,200.
Property portals such as Zoopla and Rightmove publish figures on rental asking prices, and other estate and letting agencies offer insight into what people end up paying.
Rightmove data shows that average rent increases for newly listed properties rose by 9.7% in 2022, and further increases have followed at the start of this year. Average asking prices for monthly rents in London have hit an eye-watering £2,501, while costs in inner London have surpassed £3,000.
Data from the HomeLet Rental Index shows how average UK rents for new lets have increased by more than £300 since 2014.

Contrasting current rent prices with figures at the start of the pandemic shows the scale of the hikes, with tenants having to pay £2,700 more a year:
Average annual rent for new tenancies in March 2020 Average annual rent for new tenancies in March 2023

Why are rental costs so high?
Rising rents have been driven by a surge in demand since the pandemic, combined with a shortage of rental homes.
Rightmove data shows that the number of properties available to rent is down by 38% compared with 2019, while the number of people enquiring about a property to rent is 53% higher. It's this imbalance between supply and demand that has caused prices to shoot up.
The supply issue is down to a combination of factors, one of which is the growing number of landlords selling up. Increased mortgage rates, tax changes andnew energy efficiency requirementsare among the reasons they cite for exiting the buy-to-let market.

High buy-to-let mortgage rates
Interest rates for buy-to-let properties climbed throughout 2022, but rose sharply following the government's mini-budget in September.
They have been coming down since, but the average fixed-rate deal as of 1 April is 5.64%, according to data analysts Moneyfacts. To put it in context, that's 2.3% higher than 12 months ago.
As landlords face higher costs when remortgaging or expanding their portfolio, they need to recoup the money from somewhere. In many cases, costs are thereforepassed onto the tenantin the form of rent rises.

Tax changes
Recent tax changes are also adding to landlords' woes. As of this April, thecapital gains tax allowancehas been cut from £12,300 to £6,000 - before it is slashed to £3,000 from April 2024.
This reduces the amount of tax-free profit landlords can make when selling a property. As a result, the share of rental homes appearing inproperty auctioncatalogues more than doubled between July 2022 to January 2023, as those in the buy-to-let market looked to sell up quickly before the tax changes came into force.  
Landlords are also no longer able to deduct mortgage expenses from their rental income to reduce their tax bill. Instead they can get tax relief payments based on the amount of mortgage interest they pay.

Energy efficiency requirements
Currently, rental properties must have an Energy Performance Certificate (EPC) rating of E. However, all new tenancies in England and Wales will be required to have a rating of C by 2025, with existing tenancies following suit by 2028.
Swathes of privately rented homes have an EPC rating below C, which means landlords will need to carry out costly upgrades over the coming years. According to the 2021 census, the average property across England and Wales has an EPC rating of D.
Mortgage lender Paragon Bank estimates the average cost of upgrading properties will be £10,560, with big penalties for those who don't comply.

Are existing tenants better off?
New lettings, which have seen an almost 10% hike year on year, account for a quarter of the rental market, as one in four renters move house each year.
For the 75% of renters who stay put, the picture is not so bleak, as rents have risen by an average of 4.4% for this group, according to the Office for National Statistics (ONS).
The ONS has found that 50.6% of privately rented properties in England experienced a price increase between February 2022 and February 2023, compared with 36% the year before.
The increased fees come at a time when thecost of living crisisandhigh inflationare already causing a squeeze to finances, making it harder for tenants to make ends meet.

Worryingly, the latest findings from theWhich? Consumer Insight Trackershow that an estimated 2.5 million households missed or defaulted on at least one, rent, mortgage, loan, credit card or bill in March 2023.
Figures from Zoopla reveal that renters are currently spending 35% of their income on rent as a result of the hiked costs.

How do rent prices differ by region?
As with house prices, rental costs vary depending on where you live.
Some areas have seen higher increases than others. Comparing rent levels from March 2022 to March 2023, inner London has had the sharpest price rise (18.5%).
Away from London, the North of England has recorded a 9.8% increase, while the South-west has seen the smallest growth (3.8%).
The table shows rental growth on newly let properties across regions:
RegionMarch 2023March 2022Year-on-year increase %Year-on-year increase £
Greater London£2,178£1,87416.2%£304
Inner London£3,046£2,57118.5%£475
Outer London£2,013£1,74115.6%£272
East of England£1,157£1,0935.9%£64
Source: Hamptons

According to lettings agents Cornwall currently boasts the hottest rental market, with the county being home to the highest level of tenant demand.
During the first quarter of this year, 64% of all available rental stock in Cornwall has been snapped up. West Sussex and Bedfordshire round out the top three, in terms of rental demand.
What will happen to rent prices in 2023?
When you look at the rental data for the past 12 months, it looks like a tale of two halves - but the tide may be beginning to turn again.
Figures show prices were on a constant upward trajectory between February and October last year.
Prices had plateaued in the following five months, with just a with just a 0.3% increase. However, the most recent stats show a £9 jump between this February and March - suggesting rents are back on the rise.

 The estate agent trade body Propertymark says 58% of agents increased their rents in March, based on a month-by-month average.
Rightmove predicts average asking rents for newly available properties will rise by a further 5% in 2023. Historically, this would be a significant rise, but in fact it marks a slowdown in the pace of growth compared to what we've seen over the past two years.

Supply vs demand to remain an issue
Despite the challenges landlords are facing, experts say rental supply is beginning to improve. The average estate agent's branch now has 10 homes available for rent, according to Propertymark.
However, Rightmove data shows that demand for rented properties is continuing to outstrip supply, and competition among tenants to find a property has doubled since 2019.
That demand is only expected to grow as an increasing number of would-be first-time buyers find themselves priced out of the housing market.
'The lettings market remains very much out of balance. As demand continues to outweigh supply, pressure on rents has eased slightly since the peaks of last summer but it has by no means gone away.'

What to do if you're struggling with rent payments
If you'restruggling to pay your rentor have already missed a payment, it's important to contact your landlord as soon as possible.
They aren't obliged to offer support but may be willing to discuss a compromise that will enable you to keep living in the property. This could involve reducing your monthly payments for a set period of time while you get on top of your finances.
Tenants in England or Wales may be able to qualify for theDebt Respite Scheme– also known as Breathing Space. This gives you a 60-day window in which the landlord won't be able to take enforcement action.

Source Which