UK rental inflation at two year low as average UK rent hits £1,223 pcm

• UK rental inflation slows to +7.8% - a two year low, as average UK rent hits £1,223pcm

• Rental demand down 20% year-on-year as one-off pandemic factors ease and the labour market cools

• Over half of private rented homes now in £1,000+ per month markets

• A fifth more homes for rent than a year ago but available supply still below pre-pandemic average

• Rental inflation slows rapidly in London to 5.3% as supply/demand imbalance narrows and affordability pressures hit pace of rent rises

• Scotland remains area with fastest annual rental growth at 11.6%

• Rental affordability at decade high and unlikely to improve quickly over 2024

UNDER EMBARGO UNTIL 00.01 WEDNESDAY 20TH MARCH 2024, LONDON: UK rental inflation has slowed to 7.8%, down from 11% a year ago - the lowest rate for two years - with the average UK rent now at £1,223per month, the latest Q1 Rental Market Report from property website Zoopla reveals.

The rental market remains locked in an imbalance between supply and demand which is slowly starting to narrow and leading to slower growth in rents. The average letting agent currently has 12 homes available for rent which is a fifth higher than this time last year - but still over a quarter (28%) lower than the pre pandemic average. The typical home for rent sees 15 enquiries which is significantly reduced from 40 enquiries per property in 2021, but still double pre-pandemic levels.

The moderation in rental growth is primarily due to weakening demand and growing affordability pressures rather than any major expansion in available supply. Only a sustained expansion in rental supply will alleviate the pressure renters face from higher rent levels.

London leads the rent inflation slowdown

Rental inflation in London has slowed rapidly over the last year with rents up by just 5.1%, down from 15.3% a year ago. The balance between supply and demand has narrowed the most in London, with demand 30% lower than a year ago and available supply increasing by the same amount. Rental inflation is lowest in the higher value, inner London areas e.g. Westminster (3.2%), while rents continue to rise in double digits in the more affordable outer London areas e.g. Havering (14%).

Across the rest of the UK, rental inflation is broadly in line with a year ago despite weakening demand. Rental inflation is starting to slow across all major cities but to a lesser degree than London. Average rents in Manchester are 9.6% higher than a year ago and up 8.6% in Birmingham over the last year.

Rents continue to rise fastest in Scotland (11.6%) - the only area where rental inflation remains in double digits. The rate of inflation has slowed modestly on cooler demand, largely seasonal factors, but lower average rents are less of a constraint on rental growth. Edinburgh 11.5% and Glasgow 10.9% lead annual rental inflation across major UK cities.

Half of rented homes in £1,000+ per month markets

Over half (51%) of rented homes are in markets with average rents over £1,000 per month which is almost double the level five years ago. This can be attributed to the pandemic years driving a step change in rents which have increased by 29% since January 2020, pushing many into higher rental brackets.

This is most obvious in the East of England where just a quarter (24%) of rented homes were in markets with average rents of £1,000 per month or more in 2020, compared to 70% of homes currently - or the South East where less than half of private rented homes in this area were in the higher bracket in 2020, compared to almost all of them now.

The growth in £1,000pcm areas is now expanding in regional markets outside the south of England as new city centre rental markets emerge with a fifth of rented homes in Scotland, the North West, East Midlands and West Midlands in areas over £1,000pcm. No local markets had rents over £1,000pcm outside the south of England just three years ago. The North East is the only area with no markets over this level, while Yorkshire and the Humber has just 4%.

Rental affordability set to remain high over 2024

UK rental inflation is predicted to halve over 2024 to 5% with average earnings growth to slow to just below 4%. Together, this means there is no immediate prospect that rental affordability will improve over 2024. A sustained expansion in available supply rental growth would drive a faster slowdown in rental inflation which may result in rents falling in some city centre locations. This may well happen in 2024 but not on a scale to impact the headline growth rate as ongoing low levels of net new investment means below average levels of rental supply are set to persist, supporting headline rental inflation.

Commenting on the latest report, Richard Donnell, Executive Director at Zoopla says: “The last two years have been characterised by an ongoing imbalance between rental supply and demand. This has pushed rents for new lets 30% higher since 2021 adding to cost of living pressures for renters. The imbalance between supply and demand has started to narrow but is far from closed. Rents for new lets will continue to rise over 2024, albeit at a slowing rate. Rents remain at their most expensive compared to average earnings for over a decade. Only a rapid and sustained expansion in rented housing will start to improve affordability for UK renters.”

- Ends -

For further information, please contact PR Team on pr@zoopla.co.uk or +44 (0)20 3873 8770.

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