Rental prices in Britain up by 2.3% year on year, latest index shows

Private rental prices paid by tenants in Britain rose by 2.3% in the 12 months to August 2016, down 0.1% compared with the previous monthly data.

The figures from the Office of National Statistics (ONS) also show that rent increased by 2.4% in England, by 0.1% in Wales and were unchanged in Scotland, having slowed from a high of 2.1% in the 12 months to June 2016.

There with rises in all regions in England with the South East recording the biggest rent rise of 3.4% but this was down from 3.5% in July. The data also shows that since the beginning of 2012, English rental prices have shown annual increases ranging between 1.4% and 3.0% year on year.

The next biggest rent price rise was the East of England at 3.3%, up from 3.1% in July and London at 2.6%, down from 3% in July. The index report points out that annual rental growth in the South East and East has surpassed that of London since May and June 2016 respectively.

The lowest annual rental price increases were in the North East at 0.9%, unchanged from July, then the North West at 1.1%, down from 1.2% in July, and Yorkshire and the Humber at 1.3%, unchanged from July.

Looking at data from the UK House Price Index over a longer period shows residential house price growth in Great Britain has typically been stronger than rental price growth for a number of years, with an average 12 month rate of house price inflation between January 2013 and August 2016 of 6%, compared with 2.1% for rental prices.

The ONS report says that inflation in the rental market is likely to have been caused by demand in the market outpacing supply. The Royal Institute of Chartered Surveyors (RICS) Residential Market Survey reported an increase in demand in the three months to August, while tenant demand decreased marginally in July according to the Association of Residential Letting Agents (ARLA).

On the supply side, RICS reported that landlord instructions continued to fall modestly on the month in August and ARLA reported that the supply of rental stock increased on a monthly basis in July, although this is still lower than a year ago. Overall, RICS report that there is still an overall mismatch in supply and demand, which could lead to price increases over the next year.

Steve Bolton, founder of Platinum Property Partners, believes that rents are likely to keep growing. ‘The surge in buy to let property purchases following April’s stamp duty changes has not had any discernible effect on the cost of renting and this trend isn’t likely to reverse any time soon, particularly as legislation planned for 2017 threatens to reduce rental stock and push prices even higher,’ he said.

‘The reduction of buy to let mortgage interest tax relief will make some landlords unprofitable, forcing them to pass on costs to tenants in the form of higher rents just to stay afloat. Even those who can still operate may be deterred from making further investments, reducing rental stock at a time of severe property shortage,’ he explained.

‘Although depicted as the undesirable alternative to home ownership, rental accommodation is a service valued by many, particularly young professionals looking for flexible accommodation or those not ready to commit to the property ladder just yet. However, it’s important that tenants are not prevented from saving for the future by excessive rental prices,’ he added.