Rental Market Report: June 2024

The average rent for new lets in the UK is £1,226 after a +6.6% rise in the last year. Rents for new lets will rise more slowly this year, but only a major supply boost will help with rental affordability.

The average rent for new lets in the UK is £1,226 as of April 2024 (published in June 2024).

Rents have risen 6.6% in the last year, the slowest rate of growth in 2.5 years.

Key figures

UK rental inflation lowest for 2.5 years

UK rental inflation lowest for 30 months

The average monthly UK rent has risen by £80 in the last year, taking it to £1,226pcm.

Overall, the rate at which new lets are rising annually has now slowed to 6.6%, down from 10% a year ago.

This is the lowest rate of annual rental price inflation for 30 months (since Oct 2021) as demand slows from a high base and affordability constraints among renters mean rents can’t rise much further.

If the rental increases that took place in the last three months were converted into a yearly rate, the annual rate of inflation would be 3%.

This is the lowest it’s been for the month of April since 2021, and points to a continued slowdown in the rate of rental inflation for the rest of 2024.

Demand weakens off a high base but supply remains low

The chronic imbalance between rental supply and demand is starting to narrow but remains well out of kilter.

Demand for rented homes is slowing off a very high base as one-off pandemic factors start to recede and mortgage rates fall below 5%.

Rental demand is down 25% over the last year but competition remains high, with 15 households chasing every rental home. This is more than double the pre-pandemic average of just six which was seen between 2017-2020.

More choice of homes for renters

The average number of homes for rent per estate agent has increased by almost a fifth (18%) on this time last year, which is boosting choice.

However, the supply of homes for rent remains a third lower than the pre-pandemic period, as low investment in rented homes keeps the overall stock of private rented homes broadly flat.

The national picture of lower rental demand and a modest increase in supply is replicated across all regions and countries of the UK.

Demand is down by up to 30% across the East of England, followed by London (-28%), the South East (-27%) and Scotland (-27%).

Traditionally, more rental homes become available during spring before demand kicks in between May and September each year, and supply is currently up the most in both London (23%) and Scotland (24%).

London leads the slowdown in rent inflation

The headline rate of rental inflation has slowed modestly across most areas of Great Britain over the last year.

London has led the slowdown with average rents rising by just 3.7%, down from over 13% this time last year.

The average growth in rents across the rest of the UK outside of London is currently 8%, with the highest increases in rents are being recorded in the North East (9.5%) and Scotland (9.3%).

The underlying level of rental inflation – 3-month growth expressed on an annual basis – is lower than the annual rate of growth across all areas, pointing to a slowdown in momentum in rental growth.

In London, the underlying rate of rental inflation is negative (-1.3%) as average rents have fallen by 0.3% over the last 3 months

Rents start to fall in several cities

Rents have fallen over the last quarter across a small number of cities. This is down to rent levels for new lets adjusting to localised changes in available supply and more price-sensitive demand.

Seasonal influences are also a factor, with January to April traditionally being a quieter period before the usual seasonal upturn in rental demand between May and September.

This upturn is linked to both the jobs market and the end and start of the academic year.

Our index shows average rents have fallen slightly over the last quarter in:

• Nottingham (-1.4%)

• Brighton (-1.1%)

• York (-0.4%)

• Glasgow (-0.4%)

• Cambridge (-0.3%)

• London (-0.3%).

These are modest falls in the context of the recent rapid growth in rents, but this is clear evidence that rental market dynamics are starting to turn in some markets.

Rents have continued to increase across other UK cities over the last 3 months, where there is affordability headroom for rents to rise.

Rents in regional towns and cities such as Gloucester, Sunderland and Northampton have risen by up to 3% over the last 3 months.

Growth in rents and average earnings starts to narrow

Rents for new lets have been rising faster than average earnings for over 2.5 years, since October 2021.

As rental inflation slows, the gap to earnings growth, currently at 6%, is starting to narrow.

The growing unaffordability of renting should start to act as a drag on rents rising.

However, rent levels are being supported by continued strong demand-side pressures and low levels of new investment in private rented housing.

The picture varies across the country and much depends on how affordable rents are relative to earnings and the scale of the headroom for rents to rise further.

At a region and country level, the proportion of gross earnings spent on rent is at its highest level for a decade.

The rapid rise in rents over the last 3 years has worsened rental affordability. However, there is a wide variation in how much of average earnings are spent on rent.

It is not surprising that rents are currently rising fastest in the North East and Scotland, where rental costs account for the lowest proportion of gross earnings.

In contrast, London has the highest rents, which already account for a higher proportion of average earnings. That explains why rent levels here are now back to 2015 levels, having fallen over the pandemic.

Wide divergence in rent inflation across London

London is a complex and highly segmented rental market, making regional averages potentially misleading.

Rents are the highest in inner London, where there is strong corporate demand, with more renters sharing properties compared to outer London.

Rental inflation has slowed the most in inner London areas, with rents in Westminster and Tower Hamlets up by less than 2.5% over the last year and posting modest quarter-on-quarter declines.

In contrast, rents are up by over 10% in outer London areas such as Barking & Dagenham, Redbridge and Havering, where average rents are 20% below the London average.

Supply-demand imbalance unlikely to improve

Looking ahead, we do not believe that the imbalance between rental supply and demand will improve materially over the next 12 months.

Levels of new investment in the private rented sector remain low, while demand is set to remain above-average.

This means rents will continue to increase at a slowing rate.

Rental demand shows little sign of moderating

The demand drivers of rented housing show little sign of moderating significantly in the near term.

The labour market is the primary driver of demand, alongside the need for student homes and the difficulty of becoming a first-time buyer (FTB) with higher mortgage rates.

Additional pressure is also coming from a lack of affordable homes available for households in acute housing need.

The labour market has been losing momentum in recent months, and there is continued reliance on immigration to fill gaps in the jobs market.

The number of overseas students studying at British universities has also expanded, adding to rental demand across most UK cities.

Three-quarters of FTBs come from the private rented sector. Higher mortgage rates since 2022 have made it harder for FTBs to buy a home and this has kept more households in the rented sector.

There were a fifth fewer purchases by FTBs in 2023-4. The decline in mortgage rates over 2024 is leading to a recovery in FTBs but there is continued demand for rented homes from would-be buyers waiting for mortgage rates to fall further.

We expect demand for rented homes to continue to moderate slowly as one-off pandemic factors recede, but the higher cost of home ownership and a lack of affordable homes means the rented sector will continue to see continued demand on multiple fronts.

Outlook and the politics of private rented housing

The market is still on track for a continued slowdown in rental inflation to 5% over 2024. Recent levels of rental growth have been unsustainable, meaning a slowdown is inevitable.

This is being driven more by changes in demand than any expansion in supply.

On the policy front, while the Rental Reform Bill failed to make it onto the statute books, it seems likely that rental reform will return in the next parliament whichever party forms the next Government.

While changing the protections for existing renters is important, the greatest imperative is to boost the stock of homes for rent – both private and affordable – through greater housing delivery.

Only by boosting supply can we improve choice for renters and increase the chances that consumer demand will start to exert more influence over landlord decisions and the quality of rented homes.

While there has been more political focus on the challenges facing the private rented sector, true progress will only be demonstrated by political parties setting out specific plans and goals for the future of the private rented sector in manifestos.

A healthy private rented sector is vital for economic growth and a more balanced housing market.

Key takeaways

• The rate at which rents are rising has slowed down to 6.6% for new lets, down from a high of 16% in October 2021
• London is leading the slowdown, with rents rising at just 3.7% in the last year, as rents start to fall in some cities
• Competition for properties remains high, with 15 households chasing every rental home (more than double the pre-pandemic average of six)
• However, choice is starting to increase, with the average number of homes for rent per estate agent up by 18% on this time last year
• We believe the rates at which rents are rising will continue to slow to 5% over 2024