Tuesday 17th May, 2022, London: The highest rental growth since the Global Financial Crisis, coupled with the cost of living crisis, is putting increased pressure on renters – according to Zoopla, the UK’s leading property destination, in its quarterly Rental Market Report.
On average, UK tenants are staying in their rental properties for an extra five months compared to five years ago, with the average tenancy length up to 75 weeks, from 51 weeks at the start of 2017.
Higher rents and cost of living magnify pressures faced by renters
Average UK annual rental growth has reached a 14-year high (+11%), with rents increasing to £995 in Q1 2021. This represents an increase of £88 a month compared to the start of the pandemic and follows a strong bounce back from
last year, when average UK rents were down by more than 1%, despite wage growth peaking at 8.8% last summer.
For renters, this has led to a significant increase in the proportion of gross income spent on rent, particularly in London where it has risen to a significant 52% for a single earner (a level not seen since March 2020). This falls to 26% for sharers and means that a new let agreed for an average rental property in London will cost more than £20,000 in rent over the next 12 months – putting significant pressure on renters already dealing with the backdrop of the cost of living crisis.
In the UK as a whole, the average rent now accounts for over a third of gross income (37%) for a single earner. Around a third of renters live alone, according to the English Housing Survey.
There’s also been a strong bounce back in rental growth in London from falls of 10% seen last year. Average annual rental growth in the capital rose to 15% at the end of Q1 – driven by demand for flats from students, office workers and international demand.
Demand for rental property continues to outpace supply across the country, pushing up rents, although the rate of rental growth will slow through the second half of the year
Stock constraints leading to longer tenancies
With renters facing increased pressure on their disposable income – there’s been a marked increase in tenants deciding to stay in their rental property for longer.
On average, UK tenants are staying in their rental properties for an extra 5 months compared to five years ago, with the average tenancy length up to 75 weeks, from 51 weeks at the start of 2017.
Interestingly, this trend has extended beyond lockdowns when the ability to move was hampered and indicates that landlords with tenants in situ may not be raising rents at the same rate as rental growth.
Rental demand is strongest in Scotland, Wales and London, with demand levels more than 65% above the five-year average. London’s market is also one of the most constrained when it comes to stock levels, with homes available to rent at just over half the 5-year average, creating the conditions for the sharp rises in rents.
Rental markets remain highly localised
The rental market remains highly localised, with the most affordable rental markets for dual earners located in more rural areas including Great Yarmouth in the East of England, South Somerset in the South West and North East Lincolnshire in Yorkshire & the Humber. In these markets, average rents account for up to 15% of joint gross income.
In London, Bromley is the most affordable rental market, where average rents account for 19% of joint gross income. In the North West, Copeland, a local authority on the edge of the Lake District, encompassing the towns of Whitehaven and Cleator Moor is the most affordable rental market.
Gráinne Gilmore, Head of Research at Zoopla comments:
“UK rental growth is being driven by high rental demand and limited supply, trends that are more pronounced in city centres. The surge of post-pandemic pent-up rental demand will normalise through Q2 and Q3 however, which means rental growth levels will start to ease.
“Affordability considerations will also start to put a limit on further rental growth although this may occur at different times depending on location. Rents are likely to continue rising for longer in areas which have the most constrained stock levels – currently London, Scotland and the South West.”
Gareth Atkins, Managing Director, Lettings at Foxtons comments:
“The tenancy renewal numbers we have seen so far in 2022 are unprecedented. Steadily increasing demand, severely limited stock and a swift rise in rental prices are all compelling reasons to renew – and renters are responding. Through Foxtons renewals department, we have seen a 29% rise in renewals year-on-year vs 2021. Renters are also choosing longer tenancies to avoid a market in flux; our deal length for renewals has gone up 9% in 2022, reaching an average tenancy of 15.7 months.”