UK Rental Prices Offer Plenty of Room for Growth Next Year, According to Savills

The UK rental market is gearing up for another round of upward movements, with Savills forecasting a 6% increase in average rents for 2024. However, a potential breather awaits tenants in 2025 as rental price escalations are expected to ease, aligning more closely with income growth.

The driving force behind the 2024 surge is the persistent supply-demand imbalance in the rental sector. Despite this, Savills projects a slowdown in rent hikes to a more modest 2% in 2025, providing relief to tenants. According to Savills, the average renter household allocates a substantial 35.3% of their income to rent, up from 33% in 2021-22. Notably, this proportion rises significantly in London to an average of 42.5%.

While the absolute values of rents are unlikely to cease their ascent, the pace of the increases is anticipated to decelerate markedly. Savills highlights that renters in the capital have reached a limit in their capacity to bid higher, leading to a drop in month-on-month rental growth from an average of 1.2% in 2022 to 0.6% this year. This trend is expected to persist, with rental growth likely to remain lower than the national average over the next 18 months.

Emily Williams, Director of the Savills residential research team, underscores the acute shortage of rental homes, attributing the intensified demand to increased rental inquiries post-national lockdowns in 2021. The constrained supply and challenges mortgaged landlords face due to rising debt costs, changing tax policies, and a shifted policy environment have fueled a competitive environment. Tenants must bid higher to secure tenancies, influenced partially by robust income growth.

Williams emphasises the difficulty in foreseeing a surge in rental supply in the coming years. The impact of higher borrowing costs is expected to prolong the tenure of potential homebuyers in the rental sector, sustaining demand. The ability of some landlords to transact in cash may not significantly impact supply dynamics. A substantial increase in rental stock is not anticipated until 2026 and beyond, when interest rates are projected to decrease more substantially.

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