Figures from Zoopla suggest that the tide is turning in the rental market, with the pace of rental growth set to halve to 5% in 2024.
Analysis of rents by the property portal found that rents for new lets are 9.7% higher over the past 12 months – but this is down from 11.9% a year ago. Zoopla predicts that the slowdown will pick up speed over 2024, with the growth rate for rents projected to halve over 2024 to 5%, the lowest rate since September 2021.
Scotland is bucking the UK trend with rental growth continuing to increase, a likely consequence of rent controls and high demand. Rental growth in Edinburgh is the highest across UK cities and currently stands at 15.2%, while in Glasgow it’s 13.2%.
The UK average rent currently stands at £1,201 a month. The highest rents are in in the cities of London (£2,049 a month), Oxford (£1,611) and Brighton (£1,565).
Increase in asking rent reductions
Zoopla said there are signs asking rents have risen too high in some markets, with a spike in rental listings with rent reductions of more than 5%.
The volume of asking price reductions is currently highest in London – 10% of rental listings in November 2023 saw asking rent reductions of more than 5%. Meanwhile, the proportion across the rest of the UK has also jumped to 7%, the highest it has been for more than five years.
Zoopla said this is evidence that the strong upward momentum in rents over the past three years is reaching a ceiling as renters face growing affordability pressures.
What’s next for the rental market?
Zoopla predicted that the rental market is starting to cool, having run hot for the last three years. The slowdown in rental growth over 2024 will be kept in check by an ongoing scarcity of supply due to low levels of new investment in the face of more regulation and higher mortgage rates.
Richard Donnell, executive director at Zoopla, said: “The UK is past peak rental growth which will be welcome news to renters who have seen rents rise by almost a third (31%) over the last three years. London will lead the slowdown, acting as a drag on the UK growth rate.
“The rental market has been stuck in a period of static supply and strong demand which has pushed rents higher. Demand has been driven by the strength of the labour market, the re-opening of the economy after the pandemic lockdowns, record immigration and higher mortgage rates making it harder for would-be first-time buyers to buy a home. Faster growth in earnings has supported a faster pace of rental growth. The supply-demand imbalance in rented housing is not going to disappear in 2024, however, the market is set to become more balanced than it has been over the last three years.
“The slowdown in rental growth over 2024 will be down to a weaker labour market, slower earnings growth and growing affordability pressures limiting the pace at which rents can rise, particularly in southern England. Rents have room to rise above the UK average in regional cities where affordability is less of a constraint, but this won’t be the case indefinitely.”
