UK Rental Market Index (March 2023)
Join us as we take a look at the UK Rental Market Index for March 2023, and go over the overall market, new data on inflation and the factors behind recent changes.
UK new-let rental inflation per year: +11.1%
Rental demand relative to the 5-year average: +51%
Increase in the number of privately rented homes (2016-2021): +1%
Summary
- Rental inflation has slowed to 11.1%, from a high of 12.3% in mid-2022
- A strong labour market and record immigration drove demand in 2022. Private rented housing supply has grown just 1% since 2016
- Higher mortgage rates have further weakened the economics of investing for landlords, impacting new investment in rental supply
- Landlords ‘searching for yield’ to offset rising costs will push some to let into different sectors of the private rental market
- The growth in overall rental supply is set to remain limited in 2023. Demand is expected to remain above average but lower than in 2022
- Rental inflation for new lets will slow to 4-5% by the year's end. The slowdown could be rapid in inner London and other city centres
The rental market is booming
The residential rental market has been booming for the past two years, with residential rentals seemingly always rising at a rate much in excess of increases in earnings.
While wages have climbed by 6.7% over the past year, average rates for new rentals have increased by 11.1%. Although rental inflation has marginally decreased from 12.3% in mid-2022, there is currently no indication that it will soon slow down. Renters, especially those on lower incomes and/or receiving housing benefits, are continuously concerned about the 20% increase in rent over the past three years, or an additional £2,220 per year.
Rental demand accelerates from mid-2021
Demand for rented homes, and rental inflation, took off as the economy reopened in the spring of 2021 and new visa rules attracted a major inflow of students and others for work. Our core measure of rental demand - enquiries received per estate agency branch - peaked in summer 2022 at double the 5-year average.
However, with third fewer homes available for rent than normal, demand per available rental home spiked even higher last year by 250% above the 5-year average. Demand for rented homes remains 10% higher than this time last year.
Rents will continue to rise ahead of incomes unless we see a sustained increase in rental supply or a material weakening in demand, both of which appear unlikely at this stage.
High economic immigration boosts rental demand
The underlying driver of rental demand is the strength of the jobs market which has been strong where there are over 1m vacancies according to the latest ONS data. Many jobs are filled by UK nationals, but the world’s advanced economies are increasingly looking to immigration to fill jobs, particularly highly skilled workers.
The supply of privately rented homes remains broadly static
While demand has increased, the number of privately rented homes remains largely static. In 2021, there were 5.5m privately rented homes in Great Britain - slightly more than the 5.4m total in 2016. This follows a doubling in the number of privately rented homes between 2002 and 2015, driven by landlords using buy-to-let mortgages.
In simple terms, a static supply of rented housing means a new investment that adds to supply is offset by property leaving the sector, as landlords dispose of rented homes as part of ongoing portfolio rationalisation or exit the rental market altogether.
10% - Demand for rented homes versus a year ago
500k - Record high next immigration of people into the UK in 2022
50% - Maximum loan to value for a mortgaged investor buying a London property
48% - Proportion of rented homes available on long lets at market rents
20% - Annual rental inflation in the London Borough of Newham
4-5% - UK rental inflation at the end of 2023
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