Slowing Rental Growth Signals Market Shift: What Lies Ahead for Landlords and Tenants?

Posted on February 21st, 2024.

There is increasing evidence suggesting that rental growth may have reached its highest point, as it reverts to single-digit figures. The escalation of mortgage rates initiated a period of extraordinary rental growth lasting two years. As fixed-term agreements concluded for landlords, they have, in part, passed on the resultant increased costs to tenants through elevated rents. However, slightly over two years subsequent to the initial Bank of England rate adjustment, augmented rents alongside generally higher prices have imposed a progressively constrictive financial burden on tenants, constraining their capacity to afford higher payments.

The average rents for newly leased properties surged by 8.3% across Great Britain in the twelve months leading up to the conclusion of January 2024, marking the slowest rate of increase in thirteen months. This signifies a shift in momentum from the preceding year, particularly 2023, when rental growth peaked at 12.0% in August and decelerated marginally to 10.2% by December.

It appears that the pinnacle of rental growth may have occurred during the summer months. Since that time, fewer landlords have opted to raise rental rates. In instances where adjustments were made, the monthly increments, in monetary terms, tended to fall within double rather than triple digits. January witnessed the initial instance of rental growth operating at a single-digit pace within the preceding six months. Merely two regions, namely the East of England and the West Midlands, registered double-digit rental growth in January, a decline from the peak of six regions observed last August.

Consequently, a reduced number of landlords are achieving higher rents upon re-letting their properties. In January, 59% of landlords renewing leases secured a higher rental income compared to previous agreements, a decline from the apex of 81% noted in January 2022 and 79% in January 2023.

Source: Ashmore Residential Research

Alternatively, other landlords managed to sustain the same rental rate. Landlords in Yorkshire & The Humber exhibited the highest likelihood of securing an increase, with 66% achieving such an outcome. The primary impetus behind the rent escalations observed during 2022 and 2023 emanated from landlords of smaller properties, reflecting heightened demand for more affordable accommodations amidst financial strain. Last year, 83% of one-bedroom properties were re-let at a higher rate, juxtaposed with 67% of four-bedroom properties. In the early months of 2024, the discrepancy between these figures has largely dissipated, with comparable increases observed across all property sizes.

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