There are signs the rental market could cool in the new year, following a period of steep increases to asking prices in the past three years.
Average rental growth in Britain was 9.7 per cent in October, down from 11.7 per cent at the same time last year, according to a report from property website Zoopla.
Limited supply, and a growing population of renters in Britain over the past three years, have led to rents increasing, leaving tenants bidding over the asking price desparate to secure properties while others struggle to make their monthly payments.
However, a weaker labour market, slower earnings growth and growing affordability pressures might limit the pace at which rents can rise in 2024, said Richard Donnell, executive director at Zoopla.
“The supply-demand imbalance in rented housing is not going to disappear, but the market is set to become more balanced,” he said.
As a result, rental growth is expected to halve to five per cent in 2024, Zoopla said, the lowest growth since 2021.
London has recorded the greatest slowdown in rental growth over the past year, down from 17 per cent a year ago to nine per cent in 2023. They are expected to grow by just two per cent in 2024.
This is because there are signs that asking rents have overshot in some markets, with a spike in listings seeing reductions of more than five per cent.
Zoopla said this was evidence of growing resistance to higher prices.
An expected new supply of properties might have a dampening effect on rental growth over the next two years, too, according to estate agents Chestertons.
Richard Davies, of Chestertons, said: “We will see more supply as rising yields have started to encourage more landlords back into the market and some financially-stretched homeowners are choosing to put their properties on the rental market in reaction to the jump in mortgage repayments.
“Therefore, while we do not foresee a change in demand, the addition of new supply is likely to have a dampening effect on rental growth over the next two years. As a result, we forecast a five per cent increase in rents across the UK and London in 2024, followed by a drop to 3 to 3.5 per cent in 2025 as the accumulation of new supply begins to soak up demand.”
However, separate data from estate agents Hamptons yesterday revealed that rents were at their highest in a decade.
It said rents on new tenancies rose 10.2 per cent this November when compared to the same time a year before, the strongest growth recorded in any November since its records began in 2014.
This increase means people paid a record £85bn in rent this year, it estimates.
And Kazeem Alli Balogun, a property developer and letting agent for PropertyByKazy, said this November had been the busiest in a decade.
Now, he seldom puts ads online anymore. “I would text friends or friends of friends who I know are looking for a flat. It has never been easier to find a tenant.”
There is normally a lower volume for lettings between September and November. Yet Balogun, who has been in the industry since just after the financial crisis, said the past few months have differed from earlier years.
“Within 48 hours after I put an apartment online I get more than 150 responses, have four viewings and the flat would be snapped up.”