As the UK property market responds to changing interest rates, newly developing
areas and a continuing supply and demand crisis, rent prices have reacted
accordingly across the country. Rents have risen by an average of 5.4% in the last
year, and the average rent for new lets in the UK is at £1,245 according to property
platform Zoopla.
Which factors fuelled the current state of the UK rental market?
The latest data indicates that demand for renting has cooled slightly over 2024 but
remains high by pre-pandemic standards.
The post-pandemic years have seen demand for rented homes rise to record highs
which, together with falling housing supply, pushed rents higher. Rental demand
started to increase in 2021 as the economy re-opened thanks to the resumption of
international travel, alongside changes in visa rules for workers and students at a
time when the UK jobs market was also recovering.
The jump in mortgage rates over the latter half of 2022 and 2023 also made buying a
property more expensive, keeping potential buyers in the private rental sector and
increasing the demand for rental properties.
Winter will likely cool market conditions slightly
Rental prices across the UK have risen sharply over the past year but data indicates
that the lower 5% increase in September could prove that prices are beginning to
soften, a trend that may continue as winter approaches. According to the latest
Goodlord Rental Index, year-on-year figures have generally been higher throughout
the year, with reports of 7% increases in former months.
The average rental cost for a property in England was recorded at £1,147.26 in
December 2023, and softer conditions are common for the market in winter as less
social factors like university terms and job relocations tend to take place over the
festive holiday period.
Will rent prices remain elevated?
According to Zoopla there are currently 18% more rental homes available than this
time last year, as lower mortgage rates recently enabled some renters to exit the
rental market to buy their first properties. Despite this though there are still 24% less
homes available than before the pandemic, which is limiting choice for renters as the
housing shortage continues to impact the market.
As the government slowly tries to increase the supply of affordable housing the
private rented sector will likely continue to see high demand from those on lower
incomes, and higher competition for a small pool of properties means that landlords
have an opportunity to set prices in their favour.
As a result it seems likely that elevated rental prices are here to stay for the
foreseeable future, even if with the slight fluctuations predicted for the winter months.
Which areas offer the best rental yields?
The UK’s largest cities have recorded some of the greatest growth in average rents,
averaging over 10% per year for the last three years. This pace of rent rises has
proven unsustainable and means that affordability is now starting to impact rental
growth in major centres. As a result, London and other major cities across the UK
have been leading the slowdown in rental inflation in recent months.
According to Zoopla the greatest slowdown has been in the capital, where rents are
rising at just 2.5%, down from over 12% for London properties last year. Property
website Rightmove’s figures for the third quarter of 2024 across Britain show that
the average rent advertised for London properties reached a record of £2,694 per
month recently.
Rental growth is also slowing quickly across the UK’s other largest cities, the so-
called ‘core cities’, with rents 5.8% higher over the last year, down from 10.7% a year
ago according to Zoopla. These cities include Nottingham, Bristol, Manchester,
Liverpool, Sheffield, Newcastle, Birmingham, Leeds, Edinburgh, Glasgow and
Cardiff.
Rental inflation in non-city areas continues to run at an above-average rate of 6.8% -
7.4%-a-year. This reflects high demand being pushed into more affordable areas,
often adjacent to the larger cities which are key employment centres.
Landlords and investors brace for the Autumn budget
As the market prepares for Chancellor Rachel Reeves’ budget on October 30 th some
landlords are bracing for a potential Capital Gains Tax rise, as well as new Energy
Performance Certificate regulations for and potential mentions of the Renters Rights
Bill, all factors which could impact the rental market significantly.
These potential tax and policy changes mean that it is imperative for landlords and
property investors to consult industry professionals to ensure they navigate the
market with their best interests in mind.
Tailor my Property offers an experienced network of property, investment and
financial professionals who can assist with specific goals and queries across the
broader United Kingdom.
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