Prices in capital reach record high
The average advertised rent of homes outside London has risen above £1,400 per calendar month for the first time on record, reaching a new high of £1,418, according to Rightmove.
While rents continue to rise, rental price growth has stabilised compared with the intense competition seen at the peak of the market. Between 2021 and 2023, annual rental growth hovered around +10%.
At a national level, the rental market remains relatively balanced. The number of available rental homes is 2% lower than a year ago, while renter demand is also down by around 2%. This means rents continue to face upward pressure from constrained supply, but without the severe supply and demand imbalance that drove rapid rental price inflation in previous years.
London rents are growing more quickly. The capital has reached a new record average advertised rent of £2,825 per calendar month, with annual rental growth accelerating to 3.2%, above the 2.4% growth seen outside London. This represents another shift in the post-pandemic rental cycle. During the early pandemic years, London rents first fell as more tenants initially fled the city, before rents then surged faster than the rest of Great Britain as renters gradually returned. Due to affordability pressures, in the last couple of years growth has been stronger outside of the capital, while these latest figures suggest momentum is now returning to London.
A greater imbalance
Higher rents in London appear to be driven by a more pronounced supply squeeze. The total number of available homes to rent in London is down by 9% compared with a year ago, while the number of new rental listings coming to the market has fallen by 7%. At the same time, renter demand is up by 6% annually, creating a greater imbalance than the average outside of London.
Rents are mostly rising faster in cheaper parts of Great Britain where average advertised rents have more headroom for growth. However, London sits in third place for annual rental growth (+3.2%). Employment opportunities and requirements to be in a London office may be bringing renters in, while higher mortgage rates and lower demand in the London sales market may be keeping some tenants in the rental market for longer.
Landlord activity remains another important factor affecting the availability of rental homes. The proportion of all homes for sale that were previously available to rent, an indicator of landlord selling activity, has remained broadly stable this year at around 13%, and only slightly up on last year (12%). However, looking at the reverse metric, the proportion of homes to rent that were previously for sale has decreased from 17% to 15%. While also a relatively small shift, it is an indicator of reduced landlord investment this year.
There is still a shortage of rental homes, and the viability of a potential landlord investing in a property to rent to a tenant has become more challenging with rising mortgage rates. The average two-year fixed buy-to-let mortgage rate is now around 5.34%, compared with 4.16% before the war in Iran started. Elevated mortgage rates continue make property investment less attractive for prospective landlords, particularly in areas where capital growth might also be limited.
Investment relatively subdued
Colleen Babcock, property expert at Rightmove, said: “Average rents have reached another new record and have now surpassed £1,400 per month outside London for the first time. However, beneath the headline figure, rental growth has continued to settle compared with the exceptionally fast pace we saw a few years ago. Supply remains constrained, which is continuing to put upward pressure on rents, but demand is also more measured. That has helped to create a more balanced market overall, even though affordability remains a challenge for many renters.”
Matt Smith, Rightmove’s mortgage expert, said: “One of the biggest challenges for many landlords at the moment is managing the properties they already own when the time to remortgage comes around. New buy-to-let investment has been relatively subdued for some time, and some landlords are still reaching the end of much cheaper fixed-rate deals taken out when borrowing costs were lower.
“For those landlords, moving onto a higher mortgage rate can have a significant impact on monthly costs and rental yields. With rent reviews now generally limited to once a year, landlords need to plan carefully alongside refinancing. Where the numbers no longer add up, higher mortgage costs could ultimately influence decisions about whether to remortgage or sell a rental property.”
Kim Lidbury, President of ARLA Propertymark (Association of Residential Letting Agents), comments: “The latest figures highlight why the rental market needs to be judged on more than the rate at which rents are rising. Although rental growth has moderated, advertised rents remain at record levels, and the availability of suitable homes continues to be a major concern for tenants. The cost and complexity of providing rental housing remain important considerations for landlords.”
