This is a summary of the latest UK Rental Report created by Zoopla, published on 9 December 2022. This is useful information for landlords and property investors that want to check what the latest trends are in the rental sector.
The increases in mortgage rates have reduced the ownership of homes for first-time buyers, this has resulted in an increase of demand for rental properties. Stats show that rental enquiries are 46% above the 5-year average. This is good news however, the stock of homes for rent remains 38% below the 5-year average and 4% below November 2021.
The rise in demand and a lack of supply mean rents are increasing quickly, up 12.1% over the last 12 months to October 2022. This is an increase of £117 per month or £1,400 a year. The graph shows the increase in rents in different regions, it is important to note that rents on new lets usually increase faster than for existing tenancies.
Rents are increasing fastest in the largest UK cities, led by London where rents are up 17% or £273 per month over the last 12 months. In Nottingham rental inflation is up by 12% which is at the national average.
As we move into 2023 it's worth noting that the affordability of renting will have a big impact on how high rents can be increased. Usually, rental inflation is in line with earnings. While earnings growth has accelerated, rental growth has been outpacing earnings for over a year (June 2021). This means rental affordability, measured by rent as a percentage of average earnings (for a single earner), is now at its highest level for a decade at 35%. This national pattern is replicated across many regions and countries of the UK.
If rental growth were to continue to run at 12% over 2023, the proportion of earnings needed to pay rent would be stretched even higher to 37%. This is not likely or feasible and we expect the growing unaffordability of renting to hit spending power. This trend, supported by a modest improvement in available supply, could lead to rental growth slowing to 5% over 2023.
As affordability pressures increase it is anticipated that people may be looking for smaller properties to rent, look for properties where they can share with others, or stay at home with their parents until they can afford to rent or buy a property.
Zoopla predicts that the demand for rented homes is going to rise in the medium term, so it's important we encourage more supply from all forms of landlords, whether private individuals or large corporates. It is important that policymakers encourage good landlords of all types and sizes to stay in the market and deliver much-needed supply. Only by increasing investment in the private rented sector can we ease the affordability pressures on renters in the medium term and make for a more sustainable rental market.
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Haidee is our Personal Tax Director and is a fully qualified tax adviser, having achieved the ATT qualification in 2006. Tax efficiency being her main concern. Specialising in taxation, Haidee provides clients with advice on personal tax, PAYE services, VAT and social security. She also provides guidance to new start-up businesses.
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