Tag: rental market

Accelerating rents push renters towards smaller properties and lower running costs

  • There’s been a jump in demand for one and 2-bed flats as renters feel the cost-of-living squeeze, and fewer renters looking for 2- and 3-bed houses
  • The average rent has increased by £115 per month since last year, reaching £1,051 per calendar month – and accounting for 34.4% of the average income of a single earner
  • Rental growth has accelerated over the last 12 months – from less than 2% in July 2021 to 12.3% today – although there are signs that rental growth is starting to peak at current levels
  • In a reversal of a trend seen during the pandemic, rental growth in urban markets (10.5%) is now outpacing that in rural markets (8.5%) as strong employment growth drives demand in cities
  • There is no real prospect of significantly improved rental supply in the near term as private landlords continue to sell off homes due to tax and regulatory changes and renters decide to stay in their current homes

Renters are being pushed towards smaller properties and lower running costs in the face of higher rents and rising living costs including rising energy prices, according to to Zoopla, the UK’s leading property destination, in its quarterly Rental Market Report. 

Chronic shortage of supply pushes rents higher 

The average rent has increased by £115 per month since last year, reaching £1,051 per calendar month – and accounting for 34.4% of the average income of a single earner. This surge in rents is heavily impacted by a severe supply and demand imbalance with the stock of homes available to rent standing at just half of the five-year average – while the average letting agent currently has just eight homes available to rent.*

This chronic supply shortage is also impacted by an increase in renters staying put in their properties to avoid rent hikes and landlords continuing to sell properties in the face of tax and regulatory changes. Currently, approximately 3 in 4 renters will decide to stay in their current property and although they will experience lower levels of rental growth of 4% or less – this will squeeze supply in the market as a result. 

There’s been an acceleration in demand for one and 2-bed flats as renters feel the cost-of-living squeeze, and fewer renters looking for two and 3-bed houses. Outside of London, the average asking rent is £105 lower per month for a 2-bed flat compared to a 3-bed house. 

Renters making decisions about what type of property to rent will also consider running costs and rising energy prices are likely to be playing a role in the shift in demand to smaller homes. 

When it comes to energy prices, the amount of gas to heat and run a purpose-built flat for a year is 40% lower than a terraced house and 25% lower for a converted flat.** New-build city centre flats are also becoming increasingly appealing to renters seeking out smaller homes with lower running costs.

Annual rental growth nears its peak

Rental growth has accelerated over the last 12 months from an annual rate of less than 2% in July 2021 to 12.3% today, while rental growth is out-pacing earnings growth in all regions and countries of the UK.  Rental growth is ranging from 7.6% in the North East to a staggering 18% in London – however, there are signs that rental growth is close to peaking.

Despite rents in London rebounding from a low base,  the pace of rental growth in London is not sustainable at current levels with average rents in London currently 7.8% higher than pre-pandemic.

In a reversal of a trend seen during the pandemic, rental growth in urban markets (10.5%) is now outpacing that in rural markets (8.5%) as strong employment growth drives demand in cities. 

The strongest performing urban markets are London (17.8%). Manchester (15.5%), Glasgow (14.4%) and Bristol (12.9%) – where rental growth is standing above the UK average of 12.3%. Rents are also rising faster at the top end of the market with asking rents for 2-bed flats rising more quickly at the upper end (top 25%) of the market in comparison to the lower end of the market where demand is more price sensitive.

What’s the outlook for the rental market?

There is no real prospect of significantly improved rental supply in the near term as private landlords continue to sell off homes due to tax and regulatory changes. Renters renewing their tenancies will also amplify the fierce supply squeeze and keep upward pressure on rents into 2023.

There is headroom for some renters to pay more, especially outside London and the South East, however overall, we expect the headline rental growth to slowly taper over Q4 and into 2023. 

Richard Donnell, Executive Director at Zoopla comments: “Rents have surged ahead over the last year but there are signs that the pace of growth is peaking and set to slow into 2023. Renters are responding and looking for smaller, better value for money homes to rent with an eye on energy costs as much as rental levels. 

“What the rental market needs to combat these challenges is more new homes for rent. Greater regulation has seen less new investment and a small but growing number of landlords selling up, meaning the rental market has stopped growing since 2016.

“There is a risk that more regulation to improve standards or potential new measures to dampen rental growth, as proposed in Scotland, may compound the supply problem which is pushing rents up in the first place. Policymakers need to tread a careful path between protecting consumers and ensuring a decent supply of homes for rent.”

Hannah Gretton, Lettings Director at LSL’s Your Move and Reeds Rains brands comments: “We are experiencing high levels of demand for rental properties with homes being snapped up within hours of hitting the market.

“With over 270 lettings branches nationwide, it’s a picture that is reflected up and down the country with particular demand in urban areas.

“On average, we are seeing double figures of enquiries per property with a one-bedroom property in Manchester last week receiving over 100 requests to view, highlighting just how busy our branches are and the challenges renters face when it comes to finding an appropriate property.”

Inner city Edinburgh sees rental growth of 7.2% year on year

  • Average annual UK rental growth* has reached a 13 year high, with rents increasing to £969 (+8.3%) in Q4 2021, up £62 per month since the start of the pandemic 
  • The average rent now accounts for 37% of gross income for a single earner – up from a pandemic dip of 34% during most of 2021 but broadly in line with the 10-year average of 36%
  • Overall, average rents are up nearly 12% over the last five years 
  • Demand for rental properties in January was 76% higher compared to the New Year market between 2018 and 2021 
  • The stock of rental properties currently available across the UK is 39% lower than the five year average around this time of year
  • Inner city London has seen a rental growth of 11% compared to the same time last year -but the decline in rents during the pandemic means this has translated into an increase of just £18 per month in rent compared to March 2020

Average UK rents are tracking at almost £1000pcm – £62 more than at the start of the pandemic – against a backdrop of increased living costs squeezing households, reports Zoopla, the UK’s leading property portal, in its quarterly Rental Market Report.

UK rents squeeze disposable household income as cost of living rises

The UK’s average rental growth has reached a 13 year high, up 8.3% in Q4 2021, meaning households who agree new lets are now having to pay an additional average annual cost of £744, compared to the start of the pandemic (March 2020). 

This increase means that a single earner can now expect to spend 37% of their gross income on rent, which is up from 34% during most of 2021. However, this now brings the figure broadly back in line with the longer term average of 36% as rental growth rises in line with wage growth.

Even with the current sharp rise, the overall increase in UK rents over the last five years totals 12% thanks to the decline in rents seen in some areas during the pandemic. 

Rental market shrinks as demand creates fast-paced rental landscape

The New Year has seen heightened demand for rental properties, up +76% compared to the New Year markets between 2018 and 2021. Yet the supply of rental properties recorded in January 2022 in the UK is 39% below levels typically observed at the start of the year. This is creating competition in the market,  with the imbalance of supply and demand ultimately spurring rental growth. 

As a result, properties are being snapped up. In London, this means renters are having to move quickly to secure the perfect property with the time to let now averaging a fortnight, down from three weeks in late 2020. 

This shrinking stock of homes for rent can be attributed to a continued decrease in buy-to-let investment over the last five years.. As rents rise, more renters will be choosing to stay in their properties, limiting stock turnover. With supply squeezed, it’s likely that continued demand will underpin more modest rental growth in the coming months, especially in city centres.

However, as the spike in demand falls back – hampered by the increases in household costs – it will reduce pressure on supply, ultimately driving more local competition to attract renters in local markets. 

City centre rents continue upward growth trajectory 

Pandemic trends saw strong growth in rental demand in wider commuter zones as renters embraced the ‘search for space’, but demand has now recovered across the central districts of all  major cities including Birmingham, Edinburgh, Leeds and Manchester in a reversal of recent behaviour. This is largely driven by pent up demand from office workers, students, and international residents and investors who are looking for city centre living. 

This is a normalisation of rental behaviour as demand once again rises in more central zones – seen most prominently in inner London with rental growth of 11% compared to the same time last year. But given the steep fall in London rents during the pandemic, this translates to an increase of just £18 per month in rent compared to March 2020.

Gráinne Gilmore, Head of Research, Zoopla, comments: “Rents have risen sharply in recent months, amid a backdrop of rising living costs. But it is important to point out that in terms of rental affordability, in most markets rents are still close to the 10-year average. As demand continues to outpace supply, there will be further upward pressure on rents, but affordability considerations will act as a brake on large rises. 

“In addition, the January peak in rental demand will start to ease in the coming months, putting less severe pressure on supply, which will lead to more local market competition, and more modest rental increases.  

“The flooding of rental demand back into city centres thanks to office workers, students and international demand returning to cities means the post-pandemic ‘recalibration’ of the rental market is well underway.” 

James Evans, CEO at Douglas & Gordon, comments: “Since the beginning of the year, we have seen a clear trend of people coming back to London and the office. This has contributed to around a 40% increase in new lettings applicants compared to the same month last year.

“As there is also still a very restricted supply of properties, we’re seeing landlords achieve record prices, a high quality of tenant and almost no void periods. With competition for properties at the level it is, there are 35-40 new applicants for every rental property in London and around four offers received per agreed let, so tenants are having to put themselves in the best position possible to get the properties they want. 

“Following a strong sales market in 2021, and more confidence in future price increases in London, we are seeing more buy to let investors entering the market. With some of the recent legislation changes, the need for a quality agent is even greater.”

* Based on new lets as recorded by Zoopla

Letting Agent to Support the NHS, 999 Staff and the Armed Forces

At the height of the pandemic the UK would come together at 8pm on a Thursday evening to clap for the NHS. Many asked if there were more tangible ways that the country could thank these frontline heroes – and in response Edinburgh’s leading Letting Agent Clan Gordon is launching a free Letting Package for key workers, including all  NHS and 999 staff and the Armed Forces.

The past year has seen the world as we know it shift to an almost unrecognisable extent, with the NHS, Armed Forces and 999 staff at the forefront of keeping people safe.

As a thank you to those who went above and beyond during the pandemic Edinburgh based Letting Agent Clan Gordon is offering all NHS and  999 staff and those serving in the Armed Forces, the opportunity to put a property on the Edinburgh rental market completely free of charge. 

Jonathan Gordon, Managing Director, Clan Gordon, said: “Everyone has been affected by Covid-19 in some way and we recognise the huge part that front line workers played during the pandemic.

“With the latest news that the Government’s 3% pay rise for nursing staff is way short of what was expected after the overwhelming demands of the pandemic,  we wanted to offer something to support those who went above and beyond.

“To say thank you to these heroes we want to help them to make letting their property as accessible and easy as possible and are very proud to launch this new Letting Package. The exclusive package will enable  front line workers from the NHS, those supporting 999 calls and the Armed Forces to put a property  onto the rental market with the support of our professional property managers, at no cost.”

The new Letting Package will enable NHS and 999 staff and the Armed Forces to let their property via the Clan Gordon ARLA regulated agency, free of charge. The offer includes all marketing fees,  set up costs, a virtual tour, and photographs, saving £210. 

To find out more about the Letting Package schedule a call by visiting  www.clangordon.co.uk