UK Rental Market: Soaring Rents & Property Shortage

Private tenants are locked in a loop of despair as demand for homes to rent rockets, but the number of properties available to move into plummets. 

Letting agents report the situation is worsened as more landlords queue to sell their property investments and quit the sector.

The result is that landlords and letting agents are swamped by home hunters desperate for somewhere to live, but only the East Midlands has an increasing flow of new rentals coming to market - and that only amounts to a dribble.

Property portal Zoopla’s latest rent report reveals that rents have soared by 10.4 per cent in the past year.

Tenants are paying an average of 28 per cent of their take-home pay for a roof over their heads - the portal says it is the highest amount in the past ten years.

Mis-match in the buy-to-let market

“The cost of renting is at its highest for a decade with emerging signs of stress for some renters, especially those on lower incomes. Boosting rental supply is the key policy lever to support a healthier and more sustainable rented sector,” said Richard Donnell, an executive director at Zoopla.

Tenant referencing agency Homelet has also released data that shows the average UK rent is now £1,213 a month - up ten per cent compared with 12 months ago.

The data shows rents are rising in every UK region, ranging from £632 a month in the North East, the cheapest area, to an average of £2,009 in London, where rents are most expensive.

How rents have changed in the past year

Source: Homelet

Homelet CEO Andy Halstead warns landlords should take out rent guarantee insurance to cover against the risk tenants will be unable to pay their rent as prices increase.

“As the London market is rising in terms of average price, while the cheapest area, the North East, is falling, shows demand somewhat depends on location, but as a broad rule, there is a shortage of rental properties to meet demand, with many prospective tenants facing a real battle to secure a property. This frenzied market is likely to see prices continue to rise in the coming months,” he said.

Meanwhile, the government’s rent monitor, the Office for National Statistics, has released data indicating rents are increasing at a more sober rate - five per cent in the year to the end of May.

Rents where you are

The North East remains the cheapest area for buying homes and renting them out despite a 4.3 per cent rent increase in the past 12 months.

Other rent trackers echo the views of the ONS, Zoopla and Homelet.

The Royal Institution of Chartered Surveyors (RICS) notes tenant demand is rising as the number of new instructions from buy-to-let landlords falls and the number of landlords quitting the sector increases.

“Alongside this, there has been a decline in the level of interest from new UK-based buy-to-let investors over the past six months, as well as a decline in interest from overseas buy-to-let investors. With all of this contributing to the mismatch between rising demand and falling supply, RICS reported that rental prices are expected to rise over the near term,” says the RICS report.

Buy-to-let rents FAQ

Why do rent indices show different results?

Check the data carefully. The various indices cover different periods, and the demographics of the samples vary between reports.

The Office for National Statistics (ONS) has the most extensive sample, so it should return the most reliable figures. However, the time to collect and analyse the statistics often means the ONS data lags a month behind the rest of the sector.

The Association of Residential Letting Agents (ARLA) derives insights from letting agents and provides a sentiment survey rather than measurable data.

Homelet statistics come from customer data, which may only partially reflect the market.

Should landlords raise rents in line with the stats?

Fixing rents is a business decision for landlords. Rent statistics indicate how the market moves but do not reflect demand from tenants and property standards in local neighbourhoods.

Remember that the data is historical, showing what's happened rather than what will happen.

Why do the rent indices show different results?

Check the data carefully. Other indices cover different periods, and the samples vary between reports.

The ONS has the most extensive sample, so the most reliable figures should return, but the time to collect and analyse the statistics often means the ONS data lags behind the rest of the sector.

ARLA derives insights from letting agents and provides what's known in the trade as a sentiment survey based on what they think rather than data.

Homelet statistics come from customer data, which may only partially reflect the market.

Should landlords raise rents in line with the stats?

That's a business decision for landlords. Rent statistics indicate how the market moves but do not reflect demand from tenants and property standards in local neighbourhoods.

Remember that the data is historical, showing what's happened rather than what will happen.

Which rent index is the best?

That's up to individual landlords. For instance, one index with a solid customer base in the same area as a landlord's portfolio may align more closely with market rents for that neighbourhood.

Average data is only good if you have an average home, and median rents will cover everything from a room in a shared house to a four-bedroom home.

Extra research with local letting agents will likely indicate better where a landlord should pitch a competitive rent and stop them from under or over-selling.