UK rental price growth highest level since 2008

Rental price growth reached its highest level for 13 years during Q3 2021, according to new research. Zoopla's quarterly Rental Market Report suggests that average rental prices are rising across the UK due to high tenant demand and a lack of available properties.

Read on to find out where rents are growing fastest, whether tenants are returning to cities post-pandemic, and how the rental market could perform in 2022.

Where are rents growing the fastest?

Rental growth across the UK reached 4.6 per cent during Q3 after a post-summer rise of three per cent. Excluding London, average UK rental growth reached six per cent last quarter – the highest level recorded for 14 years.

Regionally, the top three performing regions were the South West, Wales, and the East Midlands, with respective year-on-year growth of nine per cent, 7.7 per cent, and 6.9 per cent in these areas. In the year to September, Bristol was the UK’s top-performing city for rental growth (8.4 per cent), followed by Nottingham (8.3 per cent), and Glasgow (7.2 per cent).

How's the market performing in London?

The London market has bounced back in recent months after a difficult period, according to Zoopla’s report. However, alongside Scotland, it’s the only UK region where rental growth isn’t close to, or at, a 10-year high.

Here’s an overview of how it’s been performing:

  • rental growth in London reached 4.7 per cent in Q3 2021

  • the positive growth comes after 15 months of consecutive prices falls

  • annual rental growth now sits at 1.6 per cent, compared to falls of up to 10 per cent recorded in early 2021

  • average rents in London are still five per cent lower than those recorded at the start of the Covid-19 pandemic

Why is there an imbalance of supply and demand?

The report says that impressive rental growth is due to an imbalance of supply and demand. In fact, the supply of rental properties was recorded at 43 per cent below its five-year average during Q3.

This is down to a rise in post-lockdown demand from tenants, as well as landlords exiting the market or deciding not to invest further.

Landlords’ low appetite for investment is largely a result of government measures such as the 3 per cent stamp surcharge and the removal of buy-to-let mortgage interest tax relief.

The Covid-19 pandemic has also had an impact. Only eight per cent of 500 landlords we surveyed said they bought a property during the pandemic, with just seven per cent saying they had plans to expand their portfolio.

Meanwhile, 21 per cent of landlords told us they were planning to sell a property due to the cost of the pandemic. Read our full Covid-19 impact report for further insight.

Are tenants returning to cities post-pandemic?

Tenants moving away from cities to live in larger properties and more rural or coastal areas has been one of the biggest shifts in the rental market as a result of the pandemic.

However, the report suggests a return to cities gathered momentum during Q3.

Demand for properties in the central zones of Edinburgh, Leeds, and Manchester increased by over 50 per cent when compared with the first three months of 2021.

In Birmingham, demand increased by 60 per cent during the same period. Zoopla says these major cities have been ‘buoyed’ by the return of office workers and students.

At the same time, tenancies agreed in London during Q3 were 50 per cent above the five-year average, helping the market in the capital to bounce back as city life resumed.

What should landlords expect from the rental market in 2022?

As 2022 approaches, Zoopla predicts another year of rental growth underpinned by a low supply of properties and a strong employment market.

Here’s a summary of how the market could look next year:

  • rents are forecast to rise by a further 4.5 per cent by the end of 2022

  • growth in London is expected to reach 3.5 per cent, and ultimately exceed pre-pandemic levels

  • demand levels could remain higher than usual, especially in city centres

  • rental stock could remain tight due to lower levels of investment by landlords

  • rents could rise above earnings in areas of the country where rents are relatively more affordable

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Article by Simply Business