Rent rises set to speed up in gloomy forecast for tenants

Rental price growth in the United Kingdom is gathering pace after a three-year period of slower increases, signaling further financial pressure for tenants. In the final quarter of last year, the average rent for a new tenancy outside of London climbed to £1,301, a 10.3% jump from the previous year and a significant acceleration from the 8.6% growth rate seen a year earlier.

Supply and Demand Imbalance Intensifies

The market is being squeezed by fundamental economic pressures. Demand for rental properties remains exceptionally high, with the average home receiving 15 inquiries from prospective tenants. This figure is triple the level seen before the pandemic, highlighting a crowded field of renters competing for limited options. Compounding the issue is a stagnant supply of privately rented homes, which has not grown since 2016.

Landlord Costs Drive Price Hikes

A primary catalyst for the rising rents is the sharp increase in mortgage costs for property owners. An overwhelming 83% of landlords who increased rents cited their own higher mortgage payments as the reason. This financial pressure is also contributing to the supply shortage, as some landlords opt to sell their properties rather than absorb the rising costs, further shrinking the pool of available homes.

London Market Decouples from National Trend

While the broader UK market is accelerating, London is experiencing a slowdown. The capital saw average rents for new tenancies rise 7.6% to £2,630, a notable deceleration from the 12.1% growth recorded a year ago. In contrast, other regions are seeing faster growth, with Scotland recording the highest increase at 12.9%.

Future Outlook

Market analysts project that rental growth will continue to outstrip house price appreciation over the next few years. One forecast from estate agent Hamptons predicts a cumulative rental increase of 25% by the end of 2026, compared to just 5.5% growth for house prices over the same period. For the current year alone, rents are projected to rise by another 7%, indicating that the squeeze on tenants is set to continue as market fundamentals remain tight.