What is happening in the UK property rental market?

What is happening in the UK property rental market?

The UK property rental market is experiencing a shift from the post-pandemic period, where there was a record-breaking demand and sharp price growth, to a more balanced landscape with increased supply. 

At the end of 2023, there were approximately 11 home-movers enquiring about each rental property for sale, a notable decrease from the previous year's figure of 14 enquiries per property. This trend suggests a slightly quieter market with a higher number of homes listed for rent, providing renters with more options.

Rental price growth is also showing signs of easing, with average rents increasing by around 0.2% in the last quarter of 2023 compared to a 3.8% jump in the previous quarter according to Rightmove. Additionally, a higher proportion of properties are being reduced from their original asking price, indicating increased price sensitivity among tenants.

Industry experts have observed this moderation in rental price growth, attributing it to a combination of factors including increased choice for tenants, price sensitivity, and affordability constraints. Despite this, rental affordability is not expected to improve significantly in 2024, with rental inflation predicted to remain around 5% nationally and 3% in London.

Looking ahead, projections suggest a calmer outlook for the rental market in 2024, with less imbalance between supply and demand and reduced rental growth. However, sustained expansion in rental supply is deemed essential to facilitate a faster slowdown in rental inflation. 

This would require increased investment in rental properties, particularly from private landlords. Yet, such investment is unlikely to materialise significantly due to factors like higher mortgage rates, growing regulation, and landlord portfolio rationalisation.

According to Zoopla, rental affordability in the UK has reached concerning levels, with rents consuming a high percentage of average gross earnings. At the end of 2023, this measure of rental affordability stood at 29.5%, driven by rents rising faster than average earnings for over two years

While rental affordability had improved between 2016 and 2021 due to factors like weaker demand post-Brexit and increased rental supply, recent years have seen a reversal of this trend. Strong demand, stagnant supply, and high mortgage rates have widened the supply and demand imbalance, resulting in rents increasing faster than earnings.

According to Lloyds Banking, in 2024, the rental market is expected to undergo significant shifts, influenced by various factors. Higher mortgage payments are leading more individuals to opt for rental accommodation for extended periods. However, there is a decreasing supply of rental homes as landlords grapple with tax and regulation challenges, potentially reducing rental availability. Rising rents are likely to hinder renters' ability to save for homeownership, especially with falling house prices and decreasing mortgage rates, which improve buy-to-let yields. 

This scenario may encourage landlords to re-enter the market gradually, ultimately increasing rental home availability and potentially lowering rents, albeit at a slow pace. The rental reform bill, currently progressing through Parliament, aims to enhance rental standards while ensuring the market remains vibrant and effective.

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