What's happening to the cost of renting?

Tenants have suffered from soaring rental costs in recent years, with the levels paid to landlords hitting record highs. Data from HomeLet suggests the average rent for newly let properties is still sky-high compared with pre-pandemic levels, when average annual costs were around £2,600 cheaper. However, the rate at which rental prices are going up does appear to be slowing down. 

And despite the hikes, demand for rental properties remains very strong, as the cost of buying a home remains beyond the reach of many people, who are forced to keep renting.

Here, Which? examines what's happening in the rental market and explains what might be on the horizon for tenants and their monthly payments. 

How much is the average rent?

Rents have risen considerably in the last couple of years, and the average price that tenants pay their landlords monthly is now £1,170-1,200.

Property portals such as Zoopla and Rightmove publish figures, and other estate and letting agencies release their own tracked data – but these figures can often vary.

Rightmove's most recent quarterly review shows that average rent increases for newly listed properties rose by 9.7% in 2022. This made it the second highest year on record, after 2021, in terms of rent growth. Last year also saw average monthly rents in London hit an eye-watering £2,480, while costs in inner London have surpassed £3,000 for the first time.

As seen in the graph below, data from the HomeLet rental index shows how average UK rents for new lets have increased by more than £300 since 2014.

Contrasting current rent prices with pre-pandemic figures shows the scale of the price hikes:undefined

Why are rental costs so high?

Rising rents have been driven by a surge in demand since the pandemic, combined with a shortage of rental homes.

Rightmove data shows that the number of properties available to rent is down by 38% compared with 2019, while the number of people enquiring about a property to rent is 53% higher. It's this imbalance between supply and demand that has caused prices to shoot up.

High buy-to-let mortgage rates

Interest rates for buy-to-let properties climbed throughout 2022, but rose sharply following the government's mini-budget in September.

They have been coming down since, but the average fixed-rate deal as of 1 March is 5.78%, according to data analysts Moneyfacts. To put it in context, that's 2.5% higher than 12 months ago.

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Tax changes

Landlords are also no longer able to deduct mortgage expenses from their rental income to reduce their tax bill. Instead they can get tax relief payments based on the amount of mortgage interest they pay.

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Energy efficiency requirements

Currently, rental properties must have an Energy Performance Certificate (EPC) rating of E. However, all new tenancies in England and Wales will be required to have a rating of C by 2025, with existing tenancies following suit by 2028. 

Swathes of privately rented homes have an EPC rating below C, which means landlords will need to carry out costly upgrades over the coming years. According to the 2021 census, the average property across England and Wales has an EPC rating of D.

Mortgage lender Paragon Bank estimates the average cost of upgrading properties will be £10,560, with big penalties for those who don't comply.

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What's the impact on tenants?

New lettings, which have seen an almost 10% hike year on year, account for a quarter of the rental market, as one in four renters moves house each year.

For the 75% of renters who stay put, the picture is not so bleak, as rents have risen by an average of 4.4% for this group, according to the Office for National Statistics (ONS).

Campaign group Generation Rent says 50% of private tenants it surveyed have been asked to pay a higher rent in the previous 12 months. 

Meanwhile, figures from Zoopla reveal that renters are currently spending 35% of their income on rent as a result of the hiked costs. 

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How do rent prices differ by region?

As with house prices, rental costs vary depending on where you live.

Some areas have seen higher increases than others. Comparing rent levels from January 2022 to January 2023, the Midlands is the region that has seen the sharpest price rise (11.2%).

This was closely followed by the North of England (11%), while Wales has recorded the smallest growth (3.4%).

The table below shows rental growth on newly let properties:

Source: Hamptons

What will happen to rent prices in 2023?

When you look at the rental data for the past 12 months, there's a definite tale of two halves. 

Look at the graph below: HomeLet figures show prices were on a constant upward trajectory between February and October last year.

However, in cheerier news for tenants, prices have plateaued, with just a 0.3% increase in the past five months.

The estate agent trade body Propertymark says 52% of agents kept their rents steady, based on a month-by-month average in January. 

Figures show rent increases have slowed down, but Rightmove predicts average asking rents for newly available properties will rise by a further 5% in 2023. 

Historically, this would be a significant rise, but in fact it marks a slowdown in the pace of growth compared to what we've seen over the past two years. 

Supply vs demand to remain an issue

Despite the challenges landlords are facing, experts say rental supply is beginning to improve. The average estate agent's branch now has 10 homes available for rent, up from a low of seven at the end of last September, according to Propertymark.However, Rightmove data shows that demand for rented properties is continuing to outstrip supply, and competition among tenants to find a property has doubled since 2019.

That demand is only expected to grow as an increasing number of would-be first-time buyers find themselves priced out of the housing market.

Nathan Emerson, CEO of Propertymark, said: 'The number of applicants looking for rental property rose sharply in January, and although we've seen a slight increase in the number of properties available per member branch, it is nowhere near enough to keep up with high demand.'

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source https://www.which.co.uk/news/article/whats-happening-to-the-cost-of-renting-aXq8s4D030OW
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