British property rents up 2.7% annually, fastest rate in three years

Private rental prices in the UK increased by 2.7% in the 12 months to September 2015, but there are considerable regional variations, according to the latest data from the Office of National Statistics.

Private rental prices grew by 2.8% in England, 1.6% in Scotland and 0.5% in Wales, while excluding London they increased by 1.8% year on year. In the capital city they were up 4.1%.

Rental prices increased in all the English regions. The largest annual rental price increases were in London followed by the South East at 2.7% and the East also at 2.7%. Rental price increases have been stronger in London than the rest of England since November 2010.

The ONS index report says that the rental market in Great Britain continued to show signs of strength with rental prices now growing at their joint fastest annual rate since October 2012.

Increasing demand for rental properties coupled with low supply may be supporting price growth, it adds. August’s ONS House Price Index showed that house price growth has typically been stronger than rent price growth for a number of years.

The Bank of England’s Agents’ Summary of Business Conditions for the third quarter of 2015 reported the long term growth in demand for rental properties continued in the three months to September.

The Residential Market Survey from the Royal Institution of Chartered Surveyors (RICS) for September confirmed this robust growth, noting the strongest tenant demand since the second quarter of 2012 in the third quarter of 2015.

Despite signs of a slight increase in supply growth, growth in demand continues to outpace supply. While the latest RICS release did suggest a marginal increase in new landlord instructions, the longer term trend within the wider housing market is one of under supply, the report points out.

Reflecting the Bank of England’s August Inflation Report, which noted that supply remains weak within the housing market, the Association of Residential Letting Agents reported a dwindling supply as the average number of properties held per branch fell by 5.8% in August.

According to Rob Weaver, director of investments at property crowdfunding platform, Property Partner, it is no surprise than rents rose the most in London, as the supply issue in the capital is especially pronounced.
‘We need to build more homes, but there are a number of obstacles getting in the way, from slow moving planning departments to the practice of land banking. Recent initiatives such as the Government's decision to make it easier to convert commercial property into residential property are a step in the right direction,’ he said.

‘Unused office space is a way to tackle the housing shortage without eroding the green belt. We need more initiatives like this from both the public and private sector if we are to get Britain building and genuinely improve supply,’ he added.

Steve Bolton, founder of Platinum Property Partner, also believes that a shortage of suitable properties, coupled with strong demand, both from people priced out of the housing market and those who prefer to rent, is the principle cause of these sustained rises.
‘The rate of annual rent rises has increased every month this year, and this is unlikely to change in 2016 given that some landlords may be forced to put up rents in a response to increasing costs. A possible rise in interest rates will increase investor’s mortgage costs and once introduced, the cap on mortgage interest tax relief could make many buy to let properties unprofitable,’ he said.

‘Rises in rental prices continue to outstrip increases in renters’ earnings, and while some will be able to manage higher rents, landlords ought to focus on developing an effective investment strategy rather than passing costs on to tenants,’ he added.