Personal Finance

What will happen to the UK rental market in 2023?

UK house prices may be falling but conversely tenants are facing record-high rents. 

The number of households privately renting has more than doubled over the past two decades, according to the 2021 Census, to 5 million. 

Average rents across the UK were up 10.8% annually in December 2022. The average Greater London rental property was priced at more than £2,000 in December for the second month on record. Even when you remove London from the equation, rents were still up by 9.4%, according to HomeLet. 

That may sound like a nice little earner if you are a buy-to-let investor or landlord, but these increases mean a single tenant on average now faces paying 35% of their income on rent, said MoneyWeek, “the highest level of rental unaffordability in over a decade”. 

Lump in higher prices for things like energy and household goods and “it’s not exactly a great time for Generation Rent”, said Time Out. 

Why are rents rising? 

“The rental market is currently stretched to breaking point,” said Sky News, with a lack of stock restricting tenants’ choice and tax hikes deterring landlords, as well as “increased competition for places”. 

A shortage of properties to rent both privately and in the social housing sector is pushing up prices in the private rental market and “properties are being snapped up before viewings and bidding wars now appear to be commonplace”, said Time Out. 

Renters are also being hit by higher mortgage rates since last year’s mini-budget riled the financial markets. 

“Some would-be first-time buyers who could no longer afford the property they wanted, or who were keen to wait for calmer conditions before proceeding, may decide to stay renting for longer,” which pushes up demand and rental prices, said The Guardian.

But “sharp rent rises” also appear to be triggered by landlords passing on rising interest rates from their own buy-to-let loans and – in some cases – others are following their example even if they don’t need to in what the newspaper called a “rent ratchet”.  

Where is rent cheapest? 

Perhaps unsurprisingly, the closer you live to London, the higher your rent is likely to be. 

“The top ten least affordable places to rent are all in London,” said Metro. It highlighted data from Money.co.uk showing Kensington and Chelsea had the highest average monthly rent at £2,199, which represents 66.69% of the borough’s average gross monthly income. Hackney was second; its average rent of £1,600 costing 65.77% of residents’ earnings. 

There are more affordable options, Tom Mundy, from lettings platform Goodlord, told The Times, “within easily commutable distances of the city centre”. 

For example, Catford in southeast London is an 11-minute train journey from London Bridge and the typical rent is £1,012 a month, according to Goodlord. Alternatively, it takes 52 minutes on the train from Northampton to Euston and it costs on average £700 per month to live in the East Midlands town. 

The average rent in UK cities is £1,087 a month, said property website MoveIQ, which said that moving just 4.6 miles out of a city could save renters around £225 each month. This adds up to an average of £2,700 saved each year. 

Rents also tend to be cheaper the farther north you go. The average rent for a three-bedroom property in Stoke is £843 per month, “over £4,000 cheaper than the monthly cost of renting the same-sized property in London”, said the Daily Mirror.  

The paper described Stoke-on-Trent as the “ideal location for tenants looking to save on rent”, citing analysis by insurance provider CIA Landlords. Kingston-upon-Hull was second with an average rent of £862.27 per month, followed by Sunderland, where the typical rent was £968.04. 

Will rents rise or fall in 2023? 

The rental market doesn’t look likely to get cheaper anytime soon, “given higher borrowing costs for landlords and further regulatory changes which will add to the cost of investing”, said Zoopla. 

The financial dynamics of investing in residential property have shifted in recent years, the property website said. This is due to tougher regulations and extra costs, which is reducing returns, deterring new investment, and leading some landlords to sell – further reducing supply and pushing up rents. 

“Persistent pressure on first time buyers, inflation and high demand” will push rents up this year, said FT Adviser. It reported that broker Finanze is predicting a 12.91% rise across the UK.

The Royal Institute of Chartered Surveyors has forecast an even steeper rise of as much 15% this year, said Property Road, unless changes are made to the buy-to-let market.

Landlords currently have to pay an extra 3% stamp duty on additional property purchases and have lost reliefs that previously allowed them to offset business costs, taking away some of the attraction of letting out property, said Sky News. As more landlords leave, “rents rise as demand further outstrips supply”, added the news website. 

Can tenants challenge rent increases? 

Tenants in Scotland are currently benefiting from a rent freeze until 31 March 2023, but this has been ruled out in England and Wales, with the government believing rent controls will “discourage investment and lead to declining property standards”, said Mortgage Strategy. 

Negotiation is “usually the only way to challenge a rent increase if your landlord has used a rent review clause”, said homelessness charity Shelter. 

Renters can also take their landlord to a property tribunal for free to challenge their rent but, Shelter warns, “there’s a risk that a tribunal could set a higher rent than your landlord is asking for”. 

The government has promised tenants new rights in a Renters’ Reform Bill that is due to be debated in Parliament this year.  

Under the proposed law, “no fault” evictions will be banned and landlords will only be able to evict a tenant under “reasonable circumstances”. 

But there has been little action on the issues driving rising rents, said Big Issue, “namely high demand for properties and a lack of supply”. 

Marc Shoffman is an award-winning freelance journalist, specialising in business, property and personal finance. He has a master’s degree in financial journalism from City University and has previously worked for the FT’s Financial Adviser, the financial podcast In For a Penny and MoneyWeek. 

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