Are average rents now outpacing average salaries?

New research looks at what the future holds with the relationship between salaries and the cost of renting across the country.

Related topics:  Finance,  rent
Property | Reporter
19th October 2023
Question 901
"While rising wages mean tenants have more take-home pay, income increases are being spent on rising rents. There really is no current advantage to getting a pay rise, especially if it pushes someone into a higher take bracket – they could actually end up with less money"
- Jason Harris-Cohen - LandlordBuyer

New research from LandlordBuyer has revealed that average salaries have increased at a greater rate than average private rental costs in the last year.

According to the findings, over the last 12 months, average rent prices in England increased by 5.12%, however weekly regular pay has increased by 7.17% over the 12-month period (from £572 to £613). Excluding London, the UK average private rental price is £1,037 per month.

London experienced its highest-ever annual rental price percentage increase over the last 12 months (since the data series began in 2006). Rental prices increased by 5.5% from August 2022 to August 2023.

From April to June 2023, annual growth in regular pay (excluding bonuses) was 7.8%; this is the highest regular annual growth rate since comparable records began in 2001.

Where are the most affordable regions to rent in the country?

The North East of England tops the charts, where monthly rental prices sit at just £636 per month. This is closely followed by Yorkshire and The Humber where the average rent costs £836/month.

LandlordBuyer Managing Director, Jason Harris-Cohen says: “The UK’s rental market is subject to a ‘robbing Peter to pay Paul’ scenario. While rising wages mean tenants have more take-home pay, income increases are being spent on rising rents. There really is no current advantage to getting a pay rise, especially if it pushes someone into a higher take bracket – they could actually end up with less money.

"There will be a tipping point in the private rental market and I don’t think it’s that far away. Landlords will not be able to keep raising rents indefinitely. Each area and property type will have its ceiling limit.

"Breach this and the landlord runs the risk of rent arrears, with many tenants already struggling with living costs. Pitch the rent too low and the landlord won’t be able to cover their own expenses.

"Landlords exiting the market is making matters worse. The more that leave, the less choice there is and increased competition for rentals will naturally push rents up.

"A backdrop to all of this is higher mortgage rates. Despite lenders cutting rates in late summer and early autumn, the reductions are minimal - there’s still a huge gulf between the circa 2% rates we saw three, four years ago and the new normal of 5-6%. This is going to come as a huge shock to landlords coming off fixed-rate buy-to-let mortgages.

"Realistically, but-to-let may soon become a small pool of mortgage-free properties and cash-buying landlords.

"Property investors looking for a silver lining will know that high mortgage rates also keep tenants in rented accommodation. Even with house prices slowly drifting downwards, many first-time buyers simply can’t afford the deposit, stamp duty, mortgage arrangement fee, legal costs and monthly mortgage repayments needed to become a homeowner.

"Therefore it was no surprise that Zoopla recently declared renting was cheaper than mortgage repayments for the first time in 13 years.”

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