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 between £1,170-1,200.

Property portals such as Zoopla and Rightmove publish figures, and other estate and letting agencies release their own tracked data.

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 figures at the start of the pandemic shows the scale of the 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 April is 5.64%, according to data analysts Moneyfacts. To put it in context, that's 2.3% 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 rent prices?

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 move 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).

The ONS has found that 50.6% of privately rented properties in England experienced a price increase between February 2022 and February 2023, compared with 36% the year before.

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

According to lettings agent Barrows & Forrester, Cornwall currently boasts the hottest rental market, with the county being home to the highest level of tenant demand.

During the first quarter of this year, 64% of all available rental stock in Cornwall has been snapped up. West Sussex and Bedfordshire round out the top three, in terms of rental demand.

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 - but the tide may be beginning to turn again. 

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

Prices had plateaued in the following five months, with just a with just a 0.3% increase. However, the most recent stats show a £9 jump between this February and March - suggesting rents are back on the rise.

The estate agent trade body Propertymark says 50% of agents increased their rents in February, based on a month-by-month average. 

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 nine homes available for rent, 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 lettings market remains very much out of balance. As demand continues to outweigh supply, pressure on rents has eased slightly since the peaks of last summer but it has by no means gone away.'

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What to do if you're struggling with rent payments

They aren't obliged to offer support but may be willing to discuss a compromise that will enable you to keep living in the property. This could involve reducing your monthly payments for a set period of time while you get on top of your finances.

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This article was first published on 5 March and has been updated since then. It was last updated on 6 April, to update new rental figures.



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