UK & London lettings update Autumn 2023
Tight supply in the rental market continues to push up rents, albeit more slowly than the last 2 years.
Our quarterly update examines the latest trends in the UK, regional and prime London lettings markets.
Key highlights
- The rate of rent rises has peaked, but rents are still moving upwards at a slower pace
- Tenant demand remains close to record highs, according to RICS survey
- The imbalance between high demand and tight supply is unlikely to unwind quickly
UK market
The official measure of UK rents shows that rents continued to climb over the summer, with annual rental growth of 5.5% in the year to August, up from 3.5% in August last year, and 1.3% in August 2021. This measure of rental growth, which includes existing tenants and new lets agreed, probably looks modest to tenants who are looking for a new rental property where rental rises are larger.
Zoopla’s latest index of new rental lets shows average rental rises of 10.5% across the UK. This is down from 12.2% in July last year, but still indicates that many areas of the country are still registering double-digit rental growth for new lets.
As the map shows below, rents are rising fastest in Scotland, with an average 12.7% annual uplift, London, at 12.4% and the North West, where rents are up 11%. In fact, Manchester registered the highest rental growth of any English city, with a 14% increase on the year.
The growth in rents is being supported by relatively strong earnings growth, but is also due to the supply pressures in the market where demand continues to surge. The rise in mortgage rates over the last 18 months has led to more potential buyers staying in the rental market for longer. Meanwhile, buy-to-let landlords have been leaving the sector in the face of a changed tax regime and higher mortgage rates.
London & Prime London market
The ONS measure of rental growth shows London rents up by 6% in a slow climb from 0.1% at the start of 2022.
In prime London, the bounce-back in rents was much faster and stronger. After falling sharply at the start of the pandemic, the rents rallied in 2021 as tenant demand flooded back into the central zones of London as workplaces, universities and amenities got back up to speed in the wake of lockdowns. Rents were rising at an annual rate of 13.6% last summer, and have risen by 25% since the market low in 2021.
Rents are still rising in the prime market, but at a more moderate rate, registering 5.4% growth, slightly lower than the wider London market. Zoopla has also noted that outer London rental growth has caught up with inner London as tenants extend their search more widely across the capital.
Rental growth in prime central London is higher for flats, signalling increased demand for properties typically at lower price points in the market. Even with a lack of stock across the market, tenants’ budgets are coming under pressure which is already acting as a drag on rental growth in the market.
The rise in rents is pushing up yields, even as mortgage financing costs also rise. Prime London rental yields rose to a decade-high of 3.3% in September.
Outlook
| Year | UK House Prices | Prime London Prices | Prime London Rents |
|---|---|---|---|
| 2023 | -8.0% | -4.0% | +5.0% |
| 2024 | -2.0% | +0.5% | +3.5% |
| 2025 | +4.5% | +3.0% | +3.0% |
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