UK rent growth slows but tenant affordability is a ‘challenge’

The average UK rent has risen by 7.8% to £1,223 in the past year, but the pace of growth is starting to slow, Zoopla reveals.

The property portal says this growth slowdown will continue this year – it is predicting a 5% rise in rents in 2024.

One reason for that is that tenant demand has fallen by 20% compared to last year.

Zoopla says that the market returning to its pre-pandemic state and more attractive mortgage rates for first-time buyers are why this decline has happened.

Heat is coming out of rent rises

Richard Donnell, Zoopla’s executive director of research, said: “The heat is finally coming out of UK rent rises.

“Annual growth is now at the lowest rate for two years, down to +7.8% from +11% a year ago.

“This is down to weakening demand and growing affordability pressures on renters, rather than a big boost in rental supply.”

He added: “New investment from private landlords remains low, with the average letting agent currently listing 12 homes for rent.

“This is a fifth higher than last year but 28% below the pre-pandemic average.”

Supply of rental properties remains low

The data shows that despite the supply of rental properties remaining low, tenant competition is still fierce.

There are currently more than 15 enquiries for every rental property, which is still double the pre-pandemic level.

This imbalance between supply and demand is keeping rents high, especially in Scotland which is seeing the fastest rental growth at 11.6%.

However, tenants in London are seeing a significant slowdown in rent inflation with rents rising at just 5.1% annually, compared to 15.3% a year ago.

Zoopla says this drop is probably down to high rents stretching affordability and a fall in demand caused by cost-of-living pressures.

‘UK rental inflation will halve to +5%’

Mr Donnell said: “We project that UK rental inflation will halve to +5% in 2024.

“Meanwhile, the consensus among economic forecasters is that average earnings growth will also slow, to just below +4%.

“This means no immediate prospect that rental affordability will improve in 2024.”

He says there must be a sustained expansion in rental supply to see a faster slowdown in rental inflation – and that could see rents falling in some cities.

Mr Donnell added: “The clear conclusion is that the best way to improve affordability is to boost rental supply.

“This will continue to come from the new-build sector, but the big needle-mover would be more investment by private landlords.”

Pandemic has impacted the private rented sector

The pandemic has significantly impacted the UK’s private rented sector (PRS) with average rents jumping 29% since January 2020.

This has pushed many properties into higher price brackets, with more than half of all rental homes now costing at least £1,000 per month.

The situation is particularly acute in southern England, where nearly all rental properties in the South East are in the £1,000+ category.

This trend is spreading to other regions, with a fifth of rentals in Scotland, the North West, East Midlands and West Midlands also exceeding this threshold.

However, affordability remains a major concern, with rental costs reaching a record high of 29.5% of average earnings at the end of 2023.

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