Average private rents in Great Britain have soared by more than a quarter since the start of the Covid pandemic and will keep rising, according to an analysis.
The typical private rent will end this year 9.5% higher than in December 2022 and then rise a further 6% in 2024 before hitting an “affordability ceiling”, according to the estate and lettings agent Savills.
Overall, rents increased by nearly 6% in the first eight months of the year, its research found, taking total growth since March 2020 when the first Covid lockdown began to 26%.
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The dramatic increase over the past three years or so has been blamed largely on demand for decent rental properties greatly outstripping supply, and has been exacerbated by the cost-of-borrowing squeeze.
Many landlords with buy-to-let mortgages have experienced costs rising dramatically after 14 consecutive interest rate rises, prompting some to push through big rent hikes, and others to sell up. Many mortgage-free landlords have also been ratcheting up their rents. Higher borrowing costs are forcing many would-be homebuyers to stay in the rental sector for longer, further fuelling demand.
The severe shortage of properties has led to intense competition for what is available, with long queues of prospective tenants at viewings, desperate paying over the odds, and some landlords demanding a year’s rent upfront.
Savills said property supply shortages and “tougher conditions” for landlords “will keep UK rental growth strong in the short term”.
Its analysis drew on a mix of data including its own research, figures from the economic advisory firm Oxford Economics, and data on past rental growth from the UK property website Zoopla.
If the firm’s prediction of a 9.5% increase in the average private rent in 2023 proves correct, this would be lower than the 11.2% increase notched up in 2022, but higher than any other year on record, according to Zoopla’s figures.
Emily Williams, a director in the Savills residential research team, said: “Competition for stock is tough, and tenants are having to bid upwards to secure a tenancy, supported – but only in part – by a strong growth in incomes, fuelling rents upwards in the short to medium term.”
She added: “It’s very difficult to see where an increase in rental supply will come from in the next couple of years.”
Rising rents are stretching the already under pressure finances of those in the private rented sector. Savills estimated the average tenant household was now spending 35.3% of their income on rent – up from 33% in 2021-22.
However, in London, rent typically swallows up a much higher proportion of income: 42.5%. The firm said average rents in the capital had increased by 31% in the last two years and, as a result, renters in London “have already exhausted their capacity to bid upwards”.
Any significant increase in the supply of properties to rent was likely to be delayed until 2026 and beyond, when interest rates were lower, Williams said.
While the firm forecasts a 6% rise in average rents next year, it predicts that annual increases during the period 2025 to 2028 will be lower – between 2% and 3.5%.
