The Lettings Market

All measures of rental growth have remained strong in the second quarter this year. The ONS UK private housing rental index averaged 2.8% y/y growth over the quarter, an increase from 2.2% in Q1. It is important to note that supply and demand pressures can take time to feed through to this index which reflects price changes for all private rental properties rather than only newly advertised rental properties, which may experience sharper movements. Zoopla’s rental index monitors newly agreed lets and shows much stronger growth. Their latest available data lags but showed 11% annual growth for new let prices in Q1 this year.

Notably, according to Zoopla London is now seeing the highest rate of growth, a stark contrast to most of the period following the pandemic. Their latest report recorded 15.7% y/y growth for the capital, well ahead of the national average. According to Zoopla, average London rents surpassed their March 2020 level in December last year and are now at £1698 making back the lost ground over the pandemic period. This means that rental affordability in the capital is very stretched, with Zoopla’s measure showing that rent accounts for 51% of gross earnings for the average single earner household.

Leading indicators, such as the RICS Residential Market Survey suggest continued rental growth across most of the country with strong tenant demand in all regions except the North and East Anglia. Supply also remains fairly constrained which has been a feature of the market so far and has contributed to upward pressure on pricing. London now has the strongest mismatch between supply and demand, according to the survey and consequently we expect it to see the strongest rental growth over the next quarter.

In time the cost of living squeeze will begin to weigh on rental growth but on the whole rents tend to be fairly well insulated. People will make sacrifices in almost every other area of expenditure before making it on their housing costs.