UK & London rental market update summer 2024
Rental growth is easing but still supported by an imbalance between demand and supply
Highlights
- Prime London rental growth continues to ease
- Gap between demand and supply narrows again, but still strong demand for well-priced rental properties
- Cluttons forecasts +2.5% rental growth in prime London this year
Prime London rental market
The summer period has been busy in the prime London rental market, typically one of the most active periods of the year as renters look to secure property for the new academic year.
The supply of homes for rent has risen in line with this seasonal trend, and while demand is still strong, it has receded from the record highs over the last few years, which has put a brake on rental growth.
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 again to 2.5% annual growth, but there is variance depending on geography.
Annual rental growth in the North and East, including Wapping and Islington, is slightly higher at 2.9%, while in prime central London, growth has slowed to 2.2% for flats and 1.7% for houses.
While the base rate cut will be good news for landlords who have gearing on their property, helping alleviate some of the added costs they have borne over the last few years, there are a raft of planned changes to the sector being planned by the new government which could put more financial pressure on some landlords.
The abolition of Section 21 no-fault evictions has been well trailed and was set to become law under the previous government. This will likely be brought into force in the Autumn. But the new government have said they want to renew the focus on reaching 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, the big question is when the deadlines will be set.
Official date shows that more than half of residential properties in the private rented sector in London are rated band D or below. This means that some landlords will have to make a decision about whether to invest in their rental property to get it up to EPC C in order to keep renting it out. This may be enough to persuade some landlords to sell, which could put more pressure on supply, and put more upward pressure on rents. Our agents report that property owners in the prime sector are increasingly exploring both sale and rental when it considering the next step for their property.
The Conservative government cut the CGT payable on the sale of residential property (not main residence) from 28% to 24%. But the new government have made very clear that tax rises are on the way on 30 October during the Budget – and CGT is a key area where they could make tweaks. There has been talk of raising CGT in line with income tax. Again, this is another consideration for landlords as this will be the charge they pay when disposing of property if it has risen in value during their period of ownership.
Find all the latest policy and tax updates on our blog.
UK rental market
Average UK rents rose by 8.4% in the year to June, down from 9.2% in the year to March, according to official data from the ONS. The ONS has widened its survey of rental data to produce a new and more detailed index of rental prices across the UK. The result is that with more examples of rental data, the average growth rates for rents are higher than previously supposed.
The ONS is not the only measure showing that rental rises have peaked. Zoopla’s index, based on new lets agreed, shows the most modest rental growth in two and half years, at just +6.6% average growth across the UK. So while there is strong growth, the rate of growth is easing, and is expected to continue to do so. Rents may ease to around 5% on the ONS measure by the end of the year.
The ONS rental measure shows very strong rental growth in London, but this will be reflecting trends in the capital beyond zone 1, and a wider range of more central properties beyond the top-end properties in the market which characterises the prime market that we have discussed above.
The prospect of lower mortgage rates later this year will be as welcome to landlords and property investors as to home buyers.
| Year | UK house prices | Prime London prices | Prime London rents |
|---|---|---|---|
| 2023 | -2.3% | -1.1% | +4.4% |
| 2024 | +1.0% | +0.0% | +2.5% |
| 2025 | +4.0% | +3.5% | +3.0% |
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