UK rental market at “breaking point”

Private rental prices paid by tenants have increased by a massive 2.4% in the 12 months to March 2022, representing the largest annual growth rate since July 2016, according to the latest figures from the Office for National Statistics (ONS).

Private rental prices grew by 2.2% in England, 1.6% in Wales and 2.8% in Scotland during the same period, with the East Midlands showing the highest annual growth in private rental prices (3.8%) and London the lowest (0.4%).

The ONS explained that the capital’s low annual growth over the last year up to March, and the decrease in demand, is due to remote working shifting housing preferences as well as an excess supply of rental properties, as short-term lets change to long-term contracts.

With the exception of London, growth increased again from late last year across all regions. In the 12 months to March 2022, rental prices for the UK also increased much higher than in London (by 3.3% compared to 0.4% in the capital).

The figures also show that UK rental prices have increased by 12.9% since January 2015.

Read more: London house prices on the rise again

In England, growth in private rental prices represents the highest 12-month growth rate since February 2017, although when London is excluded from the equation, the figure jumps by 3.2%, representing the highest 12-month growth rate since the ONS series began in 2006.

Private rental prices in Scotland showed the highest annual growth rate since records began in 2012, while in Northern Ireland the annual rate of change in March 2022 (6.5%) was higher than the other component countries.

According to the Association of Residential Letting Agents (ARLA) in its February Private Rented Sector Report, the number of new properties being rented out by agents has fallen for the third month in a row.

For its part, the Royal Institution of Chartered Surveyors’ (RICS’) February survey reported that tenant demand “is still growing at a solid pace, while the supply of rental properties remains challenging”.

The latest private rental price data coincides with the news that the UK’s rate of inflation has risen to 7% - the highest in 30 years – and that UK average house prices increased by 10.9% year on year to February, up from 10.2% in January.

ONS data shows that the average UK house price was £277,000 in February – a whopping £27,000 higher than this time last year, prompting Andrew Montlake, managing director of the UK-wide mortgage broker, Coreco, to remark: “Has the property market ever been so disconnected from economic reality?”

Montlake regarded the price increases as a big cause for concern, saying they “should create more unease than it does celebration”.

He said: “The latest inflation data coupled with stalling economic growth in February suggest the bull run will soon come to an end. Even then, though, average property values are unlikely to fall by much as mortgage rates are still very competitive and supply levels are ridiculously low.”

The director at Bristol-based Parker’s Estate Agents, Andrew Simmonds, spoke about his catchment area in Bristol, Somerset and the West Country, confirming the view that “an extraordinary lack of stock” was supporting high prices.

Read more: UK inflation rate – numbers soar to 30-year high

But he warned that with inflation rising higher than expected, “we may see growing uncertainty among buyers and lenders alike”.

Rhys Schofield, managing director at Belper-based Peak Mortgages and Protection, blamed “frighteningly, absurdly high” house prices on a lack of supply.

In response to the latest private rental price increases, Schofield was equally glum. “The alternative to buying is renting, but when rents are going up even faster, the lack of property becomes a real issue. It’s all very well house prices going up, but those fortunate enough to be on the property ladder are leaving a heck of a lot of people behind,” he added.

Paul Neal, of Derbyshire-based Missing Element Mortgage Services, echoed the view of other experts who warned that the cost-of-living crisis would force landlords to push up rents.

He said: “With the price of literally everything increasing, it is almost inevitable landlords will increase their rents. Mortgage rates are increasing along with their expenses, and they will look to pass these increases on to their tenants. It’s another obstacle for generation rent when it comes to saving to buy their own home.”

Wesley Davidson, founder of broker Fox Davidson, agreed. He said: “The rental market is already at breaking point. Unfortunately, we are speaking to landlords who are already increasing their rents due to higher mortgage rates and the general higher cost of living. Landlords need to balance their books and tenants will sadly bear the brunt.”

Danielle Arnold, head of paraplanning at Wareham-based Bespoke Wealth, added: “Further rises in average rents were almost inevitable. In the current climate, with inflation going through the roof, renters need to be on red alert to manage their expenditure.”

She noted that the cost-of-living squeeze was dramatically reducing clients’ ability to save for a deposit to buy a home.

Imran Hussain, director at Nottingham-based Harmony Financial Services, said rental prices were currently “out of control”, pointing out that while demand for rental property was soaring, supply was drastically limited, as many landlords had decided to dispose of their properties due to a “punitive tax regime”.

Nathan Emerson, CEO of Propertymark, gave a scathing assessment of the government’s attitude towards the private rented sector amid reports that rental prices were in some instances soaring by more than 20% a month.

“The UK Government has a blatant disregard for the importance of the private rented sector, continues to hit landlords in the pockets and provides no incentives for those providing good quality homes to remain in the sector,” he said. “Given that the cost-of-living crisis is having a detrimental impact on many households, they must urgently prioritise introducing further investment in both the private rented and social sectors.”