The average rate of annual rental growth on a newly let property in the UK hit 12% in August, according to the Hamptons Letting Index.
This growth represents the fastest pace since the index began in 2014 and marked only the fifth month in more than a decade that annual rental growth has run at a double-digit pace, four of which occurred in the last year.
The growth has left new tenants paying an average of £140 per month more than they were at the same time last year.
The average UK rent crossed the £1,300pcm mark for the first-time last month, and rents now stand 29% or £296 a month higher than in January 2020 – the eve of the pandemic.
Though unlikely, should annual rental growth continue running at the current rate of 12%, it would take just under four years for the average monthly rent in the UK to pass £2,000pcm. Yet, if rents rose at the pre-Covid (2016-19) average of 2%, it would take 29 years.
Rents on newly let properties rose by a record-breaking 13.4% in Scotland in August, the largest increase in more than a decade. Having recorded the strongest growth since January 2020 of 43%, monthly rents stand at £935pcm. Rents in Scotland overtook the North of England average (North East, North West and Yorkshire & Humber) as recently as May 2022.
According to Hamptons, rents in London have been rising at a double-digit pace in 16 of the last 18 months, costing the average tenant an extra £5,508 each year compared to March 2022.
Since January 2020, growth has been led by Outer London where rents stand 30% higher than pre-Covid levels, compared to a 17% increase in Inner London.
There are signs, however, that some of the upward pressure on rental growth may ease. The number of rental homes on the market carried on rising during August, up 30% on last year’s record low, a sign that homes are sitting on the market slightly longer than last year.
But the number of rental homes available remains 39% below 2019 levels despite a similar number of tenants looking to move. And this long-term decline in rental stock will continue to underpin future rental growth.
Hamptons head of research Aneisha Beveridge comments: “While the current pace of rental growth is unsustainable long term, many mortgaged landlords are being squeezed just as tightly as tenants.
“Higher rents are only going some way towards helping mortgaged landlords’ balance their books, rather than boosting their profit. This is one of the reasons we haven’t seen large numbers of new landlord’s come into the market”.
Beveridge says the fallout from higher mortgage rates continues to buffer the rental market. “Higher interest rates have encouraged some leveraged landlords to conserve cash and invest beyond bricks and mortar. With the Bank of England raising rates to encourage debt repayment instead of additional borrowing, the 30,000+ fall in the number of outstanding UK buy-to-let mortgages since November shows landlords are playing ball”.
However, she adds that this is a mixed blessing for tenants. “With most mortgages repaid by the sale of the home, renters are being short-changed. And this is adding fuel to the rental market.”