Millennials are staying in the rental market for longer due to high mortgage rates and paid a record amount in rent this year.
The Hamptons Lettings Index for November showed that millennials had spent a high of £36.9bn on rent in 2023, which reversed trends seen between 2016 and 2020 when more of this demographic became homeowners. In 2016, this generation made up 58% of all rental households. This fell to 42% in 2021 and in 2023, rose to 44%.
Hamptons said rental growth and increased mortgage rates since the start of the pandemic had kept millennials in the rental market for longer and increased their costs.
It said if mortgage rates had stayed low, then the rental bill paid by this generation would have continued to fall as it did in 2020 as some transitioned to homeownership.
The firm said the average millennial was now aged around 35, meaning some of those who have not yet bought a home will be renting into retirement.
Gen Z enter the rental market
Some 36% of renters are generation Z, born between 1995 and 2012, which is a 1% rise from a decade ago. They spent £30.5bn on rent in 2023. This was £6.3bn more than last year and the biggest annual rise among any generation.
Renters classed as Generation X, baby boomers and the silent generation saw their total rental bill decline which Hamptons said was due to them becoming homeowners later in life, rather than their rental costs going down.
Aneisha Beveridge, head of research at Hamptons, said: “Higher interest rates in the medium term are likely to mean more millennials rent for longer. This is why the millennial rent bill has risen over the last few years, at a time when it might have been expected to fall. With the rate at which millennials climb onto the housing ladder slowing, they’re starting their own families and renting larger, more expensive homes which is pushing up the amount of rent they pay.
“This also means that while Gen Z are set to start paying more rent than millennials in the next couple of years, that crossover is likely to come later and at a higher point. And given that it gets progressively harder to get onto the housing ladder later in life, an era of higher rates will likely mean that more millennials will be renting for the rest of their lives.”
Record rental bill for 2023
The amount of rent paid by tenants in Great Britain is expected to reach a record £85.6bn this year, which Hamptons has predicted with the assumption that the number of people renting remains the same compared to last year.
It said double digit rental growth this year saw an £8bn rise in rental costs from £77.6bn in 2022, which was the largest yearly rise on record.
In total, the rent bill paid by tenants has more than doubled since 2010 when the amount was £40.3bn. Hamptons said this was partly because the number of households renting had increased by a quarter to 1.1 million over this period and also because rents had gone up.
On average, the rent for a newly-let home increased to £1,348 a month in November which was a 10.2% rise on last year. In monetary terms, this was a jump of £125 a month.
It was the seventh double digit growth recorded by Hamptons in the last 12 months and the strongest increase on record.
Beveridge added: “Tenants across Great Britain paid a record £85.6bn in rent in 2023, equivalent to the total value of all homes sold in London last year.
“While over the last 12 months the rent bill has increased because of record-breaking rental growth, longer-term it’s mostly risen as a result of more households renting.”
Strongest growth in London
In London, the average rent rose to £2,425 a month, which was a growth of 11.8% or £255 more a month compared to last year.
This was the largest annual increase recorded. In total, tenants in London have paid £32.1bn in rent this year. This is up from £28.7bn in 2022 and £17.5bn a decade ago. This also means that tenants in London are paying more in rent than the North of England, Midlands, Wales and Scotland combined which amounts to £29.4bn.
The Midlands saw the second strongest annual rental growth with a 10.9 per cent jump to £945 a month.
Across Great Britain, rental growth rose 10.2% year-on-year to £1,348. This was a slowdown from the record high of 12% in August. Of the 11 regions recorded, a slowdown in growth was seen across seven.
Last week, YourMoney.com reported that three quarters of landlords had raised rents this year.
