UK Rent Growth Accelerates to 2.6% for New Tenancies

Average rental costs for new tenancies increased by 2.6% in July compared with the same month last year. This marks the end of a three-year period of slower price growth. The pace of increases is set to accelerate further in the coming months.

Zoopla forecasts that annual rent rises will reach 4% or 5% by the end of the year. Supply constraints are the primary driver of this trend. The number of available rental homes has fallen by 3% over the past twelve months.

Supply constraints drive demand

Fewer homes are on the market, intensifying competition. Each listing now attracts an average of more than five enquiries. This level of activity is the highest seen in nearly two years.

Higher mortgage rates are deterring some first-time buyers from purchasing. These individuals are entering the rental market instead. London shows the most significant signs of heightened demand.

Regulatory changes affect investment

The Renters' Rights Act came into force in England in May. It represents the most significant regulatory change in the sector in over three decades. Landlord investment remains muted due to higher costs and increased regulation.

Propertymark argues that the sector needs more high-quality rental homes. Sustainable growth requires conditions that allow responsible landlords to invest long-term. Increasing supply is the stated priority for stabilizing the market.

Affordability varies by region

Rent increases are occurring across the UK but vary by location. In less expensive areas, tenants have more capacity to absorb price rises. In high-cost areas, rents are already at the affordability ceiling.

The projected 4% to 5% rise roughly matches average annual earnings growth. Zoopla notes that the rental market is highly sensitive to modest changes in available housing stock. Stability depends on growing the number of homes for rent through increased investment.