UK & London rental market update Autumn 2024
The imbalance between demand and supply is easing and rental growth continues to slow from double-digit highs
Highlights
- Average UK rental growth at 8.4% in September, unchanged from August, and down from 9.2% high in February this year
- Prime London rents increased by an average of 0.5% in Q3, although annual growth slows to 1.4%
- Agents report continued robust demand for well-priced rental properties
UK rental market
Average UK rents are up 8.4% on the year, but the pace of growth is slowing, down from 9.2% in the year to March, according to official data from the ONS.
The ONS is not the only measure showing that rate of rental growth has peaked. Zoopla’s index, based on new lets agreed, shows the lowest rate of rental growth in three years at +5.4% in September.
Rents are slowing in all regions, although London and the North West are still showing the highest rates of growth. The major city rental markets of London and Manchester were most affected by the pandemic, and were slightly slower to bounce back, and the tailwind of that recovery is still being felt most strongly in these markets, especially areas on the fringe of the city centre.
Overall rents are slowing for several reasons, not least affordability ceilings that have been reached in some markets. Even as supply remains constrained, properties that are not well-priced will remain on the market for longer.
In policy terms, the abolition of Section 21 no-fault evictions is a key change for the market, and will come into force as part of the Renters’ Rights Bill which has moved though the Commons very quickly since the Labour Government came to power, and is now at report stage. It is likely to be introduced early next year. The changes to legislation will have limited impact on landlords who offer good quality properties, but some landlords may choose to review their portfolios.
There was no change in October’s Budget to capital gains tax (CGT) on the sale of property, despite some chat about such a move in the press beforehand. This was good news for landlords, who won’t have to pay more on any gains when they sell and investment property.
However, investing into the market became more expensive after the Chancellor’s announcements as she raised the stamp duty surcharge on the purchase of additional property from +3% to +5%. This may serve to preserve stock in the private rented sector, as landlords may choose to retain assets rather than selling property and having to buy back in later (at a higher stamp duty rate) if they want to increase their investment levels in the future.
However, the additional consideration for landlords is the regulation around Minimum Energy Efficiency Standard (MEES). The new Government has said it wants the UK to reach net zero by 2030, meaning that there is likely to be a re-introduction of EPC requirements for those renting out property. The Conservative government stepped back from its requirement that all property where new tenancies were agreed had to be EPC C rated next year, with all rental properties rated C by 2028. We don’t know the timings yet, but the new government is likely to re-introduce these requirements, likely by 2030 – but this is to be confirmed. Upgrading a rental property may require investment, which may serve to cause some landlords to choose to enter the sales market rather than improve. A study from Rightmove showed 2.9 million rental properties would need upgraded, at a cost of around £23 billion, or £8,000 per landlord.
Our agents report that property owners are increasingly exploring both sale and rental when it considering the next step for their property.
Find all the latest policy and tax updates on our blog.
Prime London rental market
An increased supply of homes for rent has caused downward pressure on rental growth across the prime market. While there is still good demand for well-priced properties, especially more compact homes, there is still a mismatch in some cases between rental expectations and demand in the market.
Average rents in the prime London market have climbed by 20% over the last four years. This means affordability ceilings are being reached in some areas, which will limit the short-term potential for rental uplifts. As the chart below shows, the rental market remains highly localised.
There is also more price sensitivity among renters, agents say, meaning that rent levels need to be set at the correct levels to attract interest. Average rental growth across prime London has eased back to 1.4% growth annually, but there is variance depending on geography.
Annual rental growth in the North and East, including Wapping and Islington, is still running at above 2%, while in prime central London, annual growth is largely flat.
In prime central London, the international nature of the market means that there may be increasing demand for rental homes as the tax treatment of purchases, through additional stamp duty charges, the annual tax of enveloped dwellings (ATED) and the scrapping of the non-dom status sway those who need a base in the UK towards renting.
The information provided in this report is the sole property of Cluttons LLP and provides basic information and not legal advice. It must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of Cluttons LLP. The information contained in this report has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of this information. Cluttons LLP does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.
