Rents outside London are rising at their fastest pace for four-and-a-half years boosted by strong tenant demand as lockdown eases and offices reopen.
The average cost of renting a home in the UK outside London rose by 3% year-on-year in the first three months of 2021 to stand at £780 per month.
Meanwhile, in London, rents were down 9.4% compared with a year earlier.
The high levels of demand from tenants, combined with a shortage of rental homes, meant the average property took just 16 days to let, according to our latest Rental Market Report.
What’s happening to rents?
Rental growth hit a 10-year high in the north east, south west, East Midlands and Wales.
The north east, which is one of the most affordable rental markets in the UK, saw the strongest increase, with rents 5.5% higher in the first three months of the year than they had been a year earlier.
Rents in the region typically account for 22% of tenants’ income, compared with a UK average of 32%.
Rents increased by 5.3% in the south west year-on-year, while it was 4.8% higher in the East Midlands and rose by 3.8% in Wales.
At the other end of the scale, rents dropped by 9.4% in London year-on-year. Average monthly rents are now at the same level as they were in December 2013.
But the rate at which rents in the capital are dropping is easing, as tenant demand rises due to a combination of offices and amenities reopening and dramatically increased affordability.
At a city level, those in the north where renting remains more affordable, saw the biggest rent increases.
Newcastle led the way with average rents rising by 5% year-on-year, followed by Sheffield at 4.7%, Glasgow and Liverpool both at 4.1%, and Belfast at 3.8%.
The average cost of renting a home in all of the top five cities that saw the biggest increases was £665 a month or less.
What’s tenant demand like?
Demand for homes to rent was 59% higher in April than it was for the month in the more ‘normal’ markets between 2017 and 2019.
Outside of London, demand was also 32% higher than it had been in the same period of 2020.
As is the case with buyers, tenants are looking for more space, with the number of people searching for a property with access to a garden or with its own outdoor space doubling year-on-year.
This shift is creating additional levels of demand, with an increasing number of people choosing to move, rather than extend their lease.
And what about the supply of rental homes?
The supply of homes to rent in most areas is failing to keep pace with demand.
The number of new rental properties coming onto the market outside London was 5% lower during the first three months of the year than it had been in the same period of last year.
This trend is being driven by several factors.
Firstly, fewer tenants are making the move out of the rental sector and into homeownership, partly due to affordability constraints and partly due to a reluctance to make large investment decisions during the pandemic, putting further pressure on the supply of homes to rent.
At the same time, investment into the private rental market, usually made by buy-to-let landlords, has failed to regain the level seen in 2015, when the 3% stamp duty surcharge was introduced.
In fact, the number of properties purchased with a buy-to-let mortgage was 45% lower in 2020 than it was in 2015. And the number of homes in the private rental market has fallen slightly since 2016 as landlords rationalise their portfolios in the face of tax changes and additional regulation.
What could this mean for you?
With strong tenant demand and supply of homes to rent scarce, you could be in a good position to let your property quickly.
And with preferences in the rental market shifting, your property could stand out if it comes with access to outside space.
With the number of homes to rent failing to keep pace with demand, you are likely to face stiff competition if you are looking for a new rental property.
You can use our advanced search tool to see what is out there. It is also worth keeping in touch with local letting agents so that they can let you know as soon as something meeting your requirements becomes available. And register with us to receive alerts when a property meeting your criteria comes onto the market to help you get ahead.
The good news for renters seeking more space is that nearly half of properties listed on the rental market currently have a garden or access to a shared garden. Plus, the number of these homes available to rent has risen during the first three months of the year to levels seen last summer.
What’s the outlook?
High levels of tenant demand across the wider UK market combined with constrained supply of homes to rent is expected to lead to further rental growth this year.
Gráinne Gilmore, head of research at Zoopla, explained: “The increased availability of mortgages for those with lower deposits may result in more people leaving the sector to buy their first home through 2021, but the wider economic uncertainty will limit this trend.
“At the same time, the opening up of the economy and the slow return to ‘business as usual’ as the vaccine rolls out means demand will continue to build over the summer as more people move to rent their first property – although, as ever, this will be dependent on the economy opening up in line with the planned timetable.
“Demand will continue to rise in city centres as offices start to reopen and this, coupled with increased affordability levels in many cases, will start to counter the negative pressure on rents seen over the last 12 months.
“In London, where rents are down 9.4% on the year, a modest reversal in rental declines has begun, but it will be a slow build back to pre-pandemic levels in inner London. The recovery will be uneven and we expect new or recently refurbished properties to attract higher levels of demand in the second half of the year.”