The UK average rent is 20% higher than it was three years ago, according to data released this week by British property company Zoopla. With this, tenants are paying an additional £2,220 a year for rental property.
The average rent now stands at £1,078 pcm, having risen by 11.1% in the last 12 months. Meanwhile, earnings have increased at a lower rate of 6.7%, which is having a profound impact on affordability.
Annual rent inflation is down from a high of 12.3% in mid-2022, but experts are not predicting an imminent slowdown. Supply is set to remain low, and with demand for rental properties up 10% in the last year, we can expect to see continued price growth.
Demand has been on the rise since 2021. Last year, demand was recorded at 250% above the 5-year average, and today, it is still 51% higher.
Where is the demand coming from?
As the pandemic began to die down, we saw widespread migration back to the UK’s major cities, leading to a rapid increase in rental prices. However, rental growth is now higher in local areas, largely due to people being priced out of the city.
New visa rules have brought a large wave of professionals into the UK, where the job market is booming. There are currently over 1 million vacancies in the country according to government data.
Favourable immigration laws have also prompted a strong increase in student numbers. The academic year of 2021/22 welcomed a total of 680,000 overseas students, which is 122,000 more than two years ago. This is putting pressure on university accommodation providers and several major cities are reporting a shortage of beds. Subsequently, Purpose Built Student Accommodation (PBSA) is proving an attractive venture for buy-to-let investors, who can benefit from strong demand and high rental yields.
The fastest-growing markets
Competition for rented property is highest in the capital, where as many as 31 prospective tenants are competing for an available unit. Rental inflation is the highest in the country at 15.2% YoY, yet yields are the lowest in the UK due to extortionate initial costs.
Manchester has the highest annual % change in rents in the country. Since March 2022, the average rent increased by 14.4% to £978. Edinburgh and Glasgow ranked 2nd and 3rd with a 12.7% and 12.2% respective increase in prices. Birmingham, Nottingham, Aberdeen and Cardiff followed, having all experienced 10.9% growth over the year.
What’s next for the UK rental market?
Inflation and rising mortgage rates continue to squeeze the pockets of investors and many are unable to expand their portfolios under current market conditions.
On the other hand, it is also possible that investors will choose to rent their properties as opposed to selling them due to a weak sales market (which will naturally increase supply). Build-to-rent schemes are also expected to increase supply in the UK’s major cities and are an attractive venture for new investors or those looking to make new investments.
Demand is expected to fall slightly due to a lack of affordability. However, it is set to remain well above the five-year average. The UK average rent will continue to rise throughout 2023, but Zoopla forecasts that rental inflation will slow to 4-5% by the end of the year.
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