"The UK is past peak rental growth which will be welcome news to renters who have seen rents rise by almost a third (31%) over the last 3 years. London will lead the slowdown, acting as a drag on the UK growth rate"
- Richard Donnell - Zoopla
Zoopla’s latest Rental Market Report has revealed that the rental market is starting to turn - with rental growth for new lets dropping to single digits (9.7%) and the pace of growth expected to halve in 2024.
London leads the slowdown
London has recorded the greatest slowdown in rental growth over the last year, down from 17% a year ago to 9%. Rents in London have risen rapidly since mid-2021, having fallen by 10% over the pandemic (2020-2021). Annual rental growth is lowest in the inner London boroughs of the City of London (6.3%), Westminster (7.3%) and Tower Hamlets (7.3%).
At the other end of the spectrum, rental growth in Scotland continues to gain momentum and currently stands at 12.9%, up from 11.4% a year ago. Demand has been strong in Scotland but rent controls are another factor behind the strong growth in rents for new lets.
Landlords and agents are likely to be pushing rents higher to allow for the fact that rental increases will be capped at 3% a year throughout a tenancy and with the affordability headroom to do this. At a city level, rental growth in Edinburgh is +15.2% and +13.2% in Glasgow.
Northern regional cities such as Manchester, Bolton, Derby and Newcastle are also seeing double-digit rental growth from strong demand and greater headroom for rents to increase relative to earnings.
Increase in asking rent reductions
There are signs that rents have risen too fast in some areas with Zoopla recording a jump in cuts to asking rents of over 5%. This is tracking in line with the second half of 2020 when the pandemic hit demand and is evidence of growing resistance to rent increases from renters who may be looking to move to cheaper areas.
The volume of asking price reductions is currently highest in London - 10% of rental listings in November 2023 saw asking rent reductions of over 5%. Meanwhile, the proportion across the rest of the UK has also jumped to 7%, the highest it has been for over 5 years.
This is evidence that the strong upward momentum in rents over the past 3 years is reaching a ceiling as renters face growing affordability pressures. Reductions are spread across the market with a concentration in the £1,000 - £1,500 per month bracket.
What’s next for the rental market?
The rental market is starting to cool, having run hot for the last three years. The slowdown in rental growth over 2024 will be kept in check by an ongoing scarcity of supply due to low levels of new investment in the face of more regulation and higher mortgage rates.
Looking ahead, we are now past peak rental growth. We expect a major deceleration in rental growth over 2024 as demand moderates in the face of worsening affordability and supply improves slowly. Zoopla expects UK rental growth to slow to +5% by December 2024 with growth in London of just +2% - the lowest level since 2021.
Commenting on the latest report Richard Donnell, Executive Director at Zoopla says: “The UK is past peak rental growth which will be welcome news to renters who have seen rents rise by almost a third (31%) over the last 3 years. London will lead the slowdown, acting as a drag on the UK growth rate.
“The rental market has been stuck in a period of static supply and strong demand which has pushed rents higher. Demand has been driven by the strength of the labour market, the re-opening of the economy after the pandemic lockdowns, record immigration and higher mortgage rates making it harder for would-be first-time buyers to buy a home.
"Faster growth in earnings has supported a faster pace of rental growth. The supply-demand imbalance in rented housing is not going to disappear in 2024, however, the market is set to become more balanced than it has been over the last 3 years.
“The slowdown in rental growth over 2024 will be down to a weaker labour market, slower earnings growth and growing affordability pressures limiting the pace at which rents can rise, particularly in southern England. Rents have room to rise above the UK average in regional cities where affordability is less of a constraint, but this won’t be the case indefinitely.”
