A swathe of rent spikes is hitting the UK, with London rents making records. According to a recent report by Bloomberg, the current increases are exacerbating the cost of living crisis caused by inflated energy bills, fuel poverty, and higher inflation rates across the country.
England has witnessed an increase of 4.8% in private rental prices in the past 12 months to this April–up from 4.7% in the 12 months to this March. Within the UK, London, along with Yorkshire, has seen an increase of a staggering 5% in annual percentage change in private rental prices, the highest since November 2012. Analysts have unanimously agreed that this perpetual boom in residential rents continuing to run well ahead of the earnings growth of the renters is steered by the current “chronic imbalance” between supply and demand in the country’s rental market.
Citing the “April 2023 Housing Insight Report” by the Association of Residential Letting Agents (ARLA), ONS (Office for National Statistics) stated, “Demand for property continues to grow, but rental stock remains low. It means that pressure on rent prices remains low.” With demand persistently outstripping supply, rental prices are expected to be pushed up even further over the near term.
According to Aimee North, head of the housing market at ONS, “The rapid growth within UK’s rental prices shows no sign of abating.”
That said, the current inflating borrowing cost has been described as another key driver of limiting supply, thereby raising rental prices across the country. The Bank of England (BoE) has raised the average interest rates for mortgages to 4.4% this March, the highest since 2008. This increasingly high borrowing cost could make more people inclined to rent while deterring new purchasers from investing in properties. As a result, the supply could slim down.
Moreover, property owners may pass along their additional costs within their mortgage contracts to their renters as part of an effort to maintain their gross profit margins. This way, the flow-on impacts of hiking interest rates could cause average rental rates to spiral upward. Amid persistent inflation fears, the BoE has, for the 12th consecutive time, pushed the mortgage costs to 4.5% this May from 0.1% in November 2021. Analysts predict the mortgage rates to increase further by June as the BoE failed to check the extent of inflation this April as expected.
The continuously soaring mortgage costs have played a key role in cooling buyer demand which has caused house prices in the UK to plunge by 1.2% between February and March this year. According to ONS, in March 2023, residential house prices throughout the UK slowed to 4.1% from 5.8% in February 2023.
Again, the record number of immigrants flocking to the UK’s rental market has created additional demand for 205,000 new rental homes, and which has increased rental prices by 8%. The additional demand led by the recently announced Renters (Reform Bill) has further intensified the existing supply shortage issue. While the new regulations would make it challenging to evict renters, landlords should still feel incentivised to put new homes for rent on the market.
Again, supply is getting restrained by an exodus of smaller property owners, many of whom are preferring to sell their homes rather than grapple with inflated mortgage costs and tighter tax and regulatory conditions.
That said, landlords looking to sell or rent out their properties are urged to leverage expert services such as Quintessentially Estates. By taking a multi-channel approach, a high-end real estate service ensures a customer’s property gets maximum traction on property selling/renting sites.
Even though the gap between supply and demand is showing signs of narrowing, renters will still find it challenging to secure a home at an affordable rate.
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