As we pass the halfway mark of 2024, it’s an ideal time to assess the performance of the private rental market in the UK. The rental landscape has experienced shifts influenced by various economic factors, supply-demand dynamics and regional variations. This review provides a detailed overview of the key trends and figures shaping the rental market, drawing insights from the latest Zoopla Rental Market Report.
Slower Rental Inflation
The first half of 2024 has seen a deceleration in rental inflation. The average rent for new lets in the UK now stands at £1,226, marking a 6.6% increase over the past year. This growth rate is the slowest recorded in the last two and a half years, down from the 16% peak observed in October 2021. The moderation in rent hikes is attributed to affordability constraints among renters.
Regional Variations
The rental market dynamics vary significantly across different regions. London, traditionally a leader in rental price inflation, has seen a considerable slowdown. The average rent increase in the capital was just 3.7% over the last year, with some areas of the Capital experiencing declines. Conversely, regions like the North East and Scotland have recorded higher increases, at 9.5% and 9.3% respectively, reflecting more room for rent growth due to lower relative affordability pressures.
Supply and Demand Dynamics
Despite high demand, competition for rental properties remains intense. Currently, there are 15 households vying for every available rental home, more than double the pre-pandemic average. However, there are signs of improvement in supply, with the average number of homes for rent per estate agent increasing by 18% compared to last year. Still, the overall supply of rental properties remains about one-third lower than pre-pandemic levels, sustaining the high competition and supporting rent levels.
Falling Rents in Some Cities
A handful of cities, including Nottingham, Brighton and York, have seen slight declines in average rents over the past quarter. This trend is indicative of localised changes in supply and more price-sensitive demand. Seasonal factors also play a role, with the period from January to April typically being quieter before the surge in rental demand during the summer months. Despite these falls, the overall trend across the UK is one of continued, albeit slower, rent growth.
Affordability and Earnings
The gap between rent increases and earnings growth, which has been widening for over two years, is starting to narrow. As rental inflation slows, rents are rising more in line with average earnings. However, rents still consume a significant portion of gross earnings, particularly in regions like London. This ongoing affordability challenge is a crucial factor in the rental market, influencing both demand and rent levels.
The Impact of Mortgage Rates
The rental market is also being shaped by changes in mortgage rates. Higher mortgage rates since 2022 have made it more difficult for first-time buyers (FTBs) to transition from renting to owning. Although there has been some recovery in FTB activity due to a decline in mortgage rates, many potential buyers remain in the rental market, sustaining demand. The broader economic conditions, including labour market trends continue to underpin rental demand.
Outlook for the Rest of 2024
Looking ahead, the rental market is expected to see continued, but slower, rent increases. The rate of rental inflation is projected to further slow to around 5% over the remainder of the year. The imbalance between rental supply and demand is unlikely to improve substantially without more robust investment in new rental properties.
For landlords and tenants navigating this evolving market, staying proactive is key. Whether you’re considering investing in rental properties or looking for your next home, understanding these trends can help you make informed decisions.
