Rents still rising across most of UK but growth is slowing

Average residential rents in the UK continued to rise in July with demand still more than supply but the rate of growth is slowing, the latest index data shows.

Excluding Greater London the average rent agreed is now £779 per month, some 2.3% higher than a year ago while the average rent in London is now £1,599 per month, up 4% over the year.

The growth has continued since the beginning of the year and the outlook remains strong despite the growth slowing, says the rental index report from HomeLet.

The data suggests that landlords have been able to continue securing higher rents on new tenancies despite the economic uncertainties created by the UK’s vote to leave the European Union in June.

It mirrors data from the housing market, with mortgage lenders also reporting modest growth in house prices in the month following the Brexit vote although many agree that is still too early to measure what affect Brexit sentiment has had on the market.
 
Looking forward, the fundamental forces in the private rental sector remain unchanged, the report suggests with Britain’s growing population, the relative unaffordability of house prices, and the lack of new homes being built combined with the reduction in social housing suggest that the private rental sector will continue to be an ever important source of homes in the years and decades to come.

A breakdown of the figures show that there is considerable regional variation recorded by the index. Month on month rents increased the most in East Anglia with a rise of 3.7% and the region also topped the annual growth with a year on year rise of 9.7%, taking the average to £897.

But rents fell by 3.7% month on month in Scotland but are up 1.4% year on year to an average of £676. The only other region to see a month on month fall was the North East with a decline of 0.4% to £537 and a year on year fall of 5%.

Year on year rents have fallen in the South West by 2.1% but are up by 0.7% month on month to £894 and by 0.5% in the North West to £660 but the region has seen month on month growth of 0.5%.

Ultimately, rents will be determined by supply and demand in the private rental sector, according to Martin Totty, chief executive officer of HomeLet’s parent company Barbon Insurance Group.

‘Population growth will continue to increase demand, and that the housing stock isn’t growing quickly enough to meet that demand. However, with rents ultimately limited to a tenant’s ability to pay, rents are likely to continue to climb, albeit at the slowing pace noted most recently,’ he said.
 
‘We won’t know exactly how Brexit is impacting the private rental sector and it will be several months yet until we see some clearly established trends in the marketplace. It seems likely that with lenders concerned about the prospect of falling house prices, loans to value in the mortgage market are going to become less generous, which may see more people turn to the rental sector rather than buying a property,’ he pointed out.

‘However, it’s possible we may also see renewed interest in the London rental market as foreign investors seek to pick up investment property to make the most of the big exchange rate advantage following the fall in the pound,’ he explained.

‘We may also see foreign investment increase outside the capital, in other cities across the UK.  This coupled with recent figures showing that the number of people becoming homeowners is falling across the country, the demand for rental accommodation is likely to remain strong,’ he added.