The rising tide of rent: a 2023 review of the UK rental market

The UK rental market has been scaling new heights since January 2021, and the upward journey has been nothing short of noteworthy. Rent increases are not just a topic of conversation; they’re making waves in headlines month after month. Data from the Office for National Statistics (ONS) has dropped a bombshell: an eye-opening annual increase of 6.1% in private rental prices for the year ending in October 2023.

For context, rewind to the years between 2018 and 2021 – rent increases were a calm sea, with an annual growth rate just bobbing above the 1% mark. But then, the tides turned. The Bank of England’s base rate began its climb, and as if on cue, rental costs started their surge.

London’s story is a chapter on its own. The pandemic sparked a city exodus as people sought the serenity of rural life, causing a slump in rent throughout 2020. At one point, London’s rent growth plunged into the red, bottoming out at -0.4% in August 2021. Yet, by October 2023, the capital has done a full 180, boasting a 6.8% increase – the most significant yearly percentage jump since records began in January 2006.

Let’s dive into the details. Hamptons’ latest lettings index, as of September, paints a picture of soaring rents across the board. The average rent for new tenancies in Great Britain hit £1,325 – that’s an 11.7% year-on-year increase, translating to an extra £139 in the pockets of landlords. Step outside of London, and the average rent is £1,055, up by 9.3%, or £89. But Greater London steals the spotlight with a staggering 15.7% increase, a hefty £322 hike, pushing average rents to £2,376.

Our landlord survey – a closer look

Our recent survey among buy-to-let landlords echoes these findings. A remarkable 76% have turned up the dial on their rents over the last twelve months. Digging into their reasons, 51% pointed to the need to offset rising mortgage costs, while 20% followed their letting agents’ advice. A further 8% invested in property maintenance, repairs, or improvements, all in the quest for that coveted Energy Performance Certificate (EPC) rating of ‘C’. A mere 3% attributed their decision to heightened taxation.

Yet not all landlords have joined the hike, with 24% choosing to hold steady, giving reasons ranging from loyalty to reliable tenants, empathy for affordability amidst a cost-of-living squeeze, and simply because their rental income was sufficient to cover their outlays. However, for some, the pressure of increased mortgage payments has become too much to bear without a corresponding rise in rent.

Regional round-up

Our survey suggests a map of regional variances. In the South (excluding London), a substantial 89% of landlords are contemplating rent rises, with 7% still on the fence. Up North, the figure dips to 62%, with a notable 35% undecided. The Midlands sits in the median, with 78% pondering an increase, and 22% in the realm of uncertainty. In London, where property prices are the nation’s peak, 65% are mulling over a hike, with 10% unsure.

Drilling down, two-thirds of landlords consider upping rents up to 10%. This includes 38% who would dare between 6% and 10%, and 27% leaning towards a gentler rise of 5% or less. Meanwhile, one in five landlords is wrestling with indecision, one in ten is thinking over a rise exceeding 10%, and 5% have no intention of adjusting their rents.

Looking ahead

In summary, the ONS, Hamptons and our survey signal a consistent upswing in rents. With the demand for rental properties consistently outstripping supply, this trend shows no signs of ebbing. Nevertheless, a beacon of hope is on the horizon for both borrowers and renters. Mortgage rates are taking a downward turn. If inflation continues its approach towards the 2% target, we may well witness a stabilisation of the Bank of England base rate, potentially ushering us into a new equilibrium for mortgage rates.

Concluding thoughts

It’s clear that the UK rental market is a dynamic landscape. As we navigate through these changing currents, staying informed is key. Whether you’re a mortgage broker, landlord or tenant, understanding the market’s fluctuations helps make sound decisions.

At Landbay, we’re committed to providing insights that empower our community to thrive, no matter the market tide.