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Rental yields by England and regions
Every month we are bombarded with a host of rental reports which cover what’s happening in the market, both nationally and regionally.
Some reports are produced monthly and others quarterly. Some cover the UK, while others cover just England and Wales. From working with rental indices, we know there are three levels of rental inflation:
The rental reports give us an insight into what is happening in the market and we comment on whether this is a general trend, something which is an anomaly or ‘one-off’ and particularly highlight the enormous regional differences.
We take a lot of time and effort to understand the strengths and weaknesses of the different indices and to make sure that when they give conflicting information or abnormally high increases and decreases, we attempt to explain why these large changes exist. For example:
Rental data from the North East
Having studied rents for many years not just via the indices but also by talking to local letting agents, we know rents for the region of the North East can fluctuate dramatically as monthly rents vary from just £300 per month to in excess of £3,000 a month. In addition, there is a large student influx, so a large proportion are HMOs, raising the average rents at different times of the year. As such, we tend to report, where possible, on individual areas and take large month-on-month fluctuations with a pinch of salt.
Large rises and falls
We also know rents don’t typically fluctuate much from one month to the next and are typically capped by wage growth. As such, we always seek to explain large fluctuations which don’t tend to happen ‘at a local level’ even though they may be reported by the statistics as they tend to be anomalies.
However, 2022 has seen this change. Newly let rents have been rising at double digits. Partly due to wage rises of 6.4% YoY (ONS data) and partly due to comparing them to reduced rents during Covid, so partly rents are ‘catching up’ with where they should be. In contrast, rents for existing lets are increasing at a much lower rate – 3.8% according to Zoopla.
The key problem from now on is that successive anti landlord policies have led to a huge sell off by landlords – or they have moved into the self-service accommodation market as it’s more lucrative.
For the first time in the housing market, we are seeing demand versus stock levels tighter in the rental market than the sales market, hence higher rents are being offered by those desperate to secure a home.
Rightmove
Rents hit new record & city tenants down-size to studio flats
“National average asking rents outside London have hit a new record, now £1,162 per calendar month (pcm). Asking rents jump by more than 3% this quarter (+3.2%) for only the third time on record.”
Hometrack
Is the rental market now slowing down?
“Rental inflation is 12.1% per annum, well ahead of earnings (6%).”
DPS
No let-up in UK rent rises DPS Rent Index Q3 2022
“Following last quarter’s record-breaking rise, UK rents continue to trend upwards according to the latest DPS Rent Index. For the second quarter in succession, average rents in the UK rose by over 2%, now standing at £889.”
Homelet
The last month of 2022 saw the first drop in the average UK rental price for over a year
“The average rent in the UK has dropped for the first time in over a year - down 0.1 since November to £1,174 pcm.”
Goodlord
A modest drop in rental costs reflects a slightly cool December
“Average rental costs are now at their lowest since June 2022. However, 2022 ended with average rents up by 8.7% across England, compared to 2021.”
Propertymark
Pressure continues to come down on rents
“The rise in supply over demand has reduced pressure on rents, with the number of agents reporting month-on-month rent price rises falling below 50 per cent for the first time since February 2021.”
ONS
“Private rental prices paid by tenants in the UK rose by 4.0% in the 12 months to November 2022, up from 3.8% in the 12 months to October 2022.” (Includes existing and new tenancies)
Download Kate Faulkner's rental and buy to let report for Q3 2022 here
What a change over time. I have tracked the rental market in depth across the country since 2007 and have never seen rises at this level, for so long in all these years.
Sadly, this is a ‘government policy’ led problem, all driven by a lack a stock due to successive government initiatives to hold back investment in the rental sector. Why any MPs think the rise in the PRS is a cause of the housing crisis and preventing properties from being rented would ‘magically’ solve the housing shortage I don’t know, perhaps it was more ‘wishful’ thinking!
But with 25% of tenants on benefits renting in the PRS due to failure to build social homes people are eligible for, many renting rooms in HMOs and many people living at home to save for a deposit, the sale of a BTL property does not mean there is one less person in the rental sector who now becomes a home owner - as appears to be the simplified belief of MPs and government.
The shocking figures for tenants are not just the rise in rents as a result of the failed government anti landlord policies, what is worse are the figures of those tenants now in temporary accommodation and the rise in those on housing waiting lists as a result of the lack of stock in the sector. This was always inevitable, but the government did not believe the industry.
Perhaps if governments and local authorities had focused on working with landlords to help house people in need rather than cap Local Housing Allowance and reduce the stock levels; if they had implemented ROPA – Regulation of Property Agents – and introduced Property MOTs so no property can be advertised legally without being fit for purpose, and if they had created innovative initiatives to encourage private landlords to build new homes rather than buy existing ones, a kind of individual investor ‘build to rent’ programme, we could be celebrating success rather than facing the disaster we are now seeing.
Until government and MPs realise that PRS landlords and regulated agents are the solution to solving the housing crisis, sadly, in my view, their policies will continue to fail tenants.
Download Kate Faulkner's rental and buy to let report for Q3 2022 here
The Office of National Statistics produces some fab long-term data, but it only gives ‘percentage’ changes, not rental averages and these tend to be lower than most rental indices as they include existing rents, not just new lets.
What we can learn from the ONS is two things:
Source: ONS
For property prices, there are often 30-40% differences between the indices, but for rents it’s a different story – they are actually pretty similar across the three indices we track on a regional basis. London of course has the biggest difference, but that’s because it’s such a wide ranging market of properties, but the rest of the rent comparisons are pretty much in line with each other.
However, this doesn’t disguise the huge increases year on year, with the lowest rise from Homelet in the North East of 6.6% year on year, and the highest rise reported in the South West by Rightmove of 12.1%.
How does this compare to the past? Having tracked rents for many years via the Belvoir Rental Index, alarm bells used to sound if rises or falls were higher than 4%, so for rents to hit these levels is pretty much unheard of.
Why is it happening? It’s not just down to lack of stock as that doesn’t always mean rents will rise, typically rents are very tied to wages. However, with wages rising at their fastest rate and pensioners and those on benefits being given inflation busting rises, this is allowing rents to continue to rise, when normally they would have stagnated.
As the ONS chart shows below, wages fell during the credit crunch and barely rose above a few percent from 2010 to 2021, the jump from this time has enabled rents to rise at a prolonged and higher level than I’ve ever seen since 2007.
Source: ONS
The largest annual rental price increase in the 12 months to November 2022 was in the East Midlands at 5.1%, closely followed by the North West at 4.7% and the South West at 4.4%.
It’s good to see and compare the increases from the indices for new lets above and compare these to the much lower figures for existing rents shows how fair landlords are to their existing tenants, rather than being accused of being ‘greedy’. Rents for existing lets (and some new) from the ONS in comparison are rising between 3.5 and 5%, a third or half the rises we are seeing for new lets.
Source: ONS
This is shown even more starkly by the latest Hometrack data:-
Hometrack
No sign of rent inflation slowing in the short term
”Rising demand and a lack of supply mean rents are increasing quickly, up 12.1% over the last 12 months to October 2022. This is an increase of £117 per month or £1,400 a year. The underlying data shows no sign of any immediate slowdown, with rental inflation in the 3 months to October 2022 (3.6%) being the highest quarterly gain since December 2021.
“It is important to draw a distinction between rental inflation for new lettings i.e. when the property becomes vacant and its rent is adjusted in line with the market, and rental inflation for all private rented homes. 1 in 4 renters move home each year and this group will experience rental inflation in line with new lettings.
“For the 75% of renters that do not move each year, rental increases are much lower at 3.8% in the year to October 2022 1 - slower than the growth in average earnings. The chart compares the rental inflation rate for new lettings versus all private rented homes based on the ONS Index of Private Housing Rental Prices. This variance is why more renters are staying put, to avoid higher rental payments when they move, and further compounding supply problems.”
DPS
Regional growth remains strong
“Though the pace of rental growth slowed slightly in most regions outside of London last quarter, rents have continued to push new heights. Five regions saw rents increase of 2% or more in the three month period. Annually, all regions have seen significant rental growth. Surprisingly, rising by a comparatively modest £34 (5.07%) to £705, the West Midlands has seen the lowest growth over the last 12 months, both by value and by percentage. Most regions outside of London have seen rents grow by over 7% since Q3 2021, with Scotland (up 8.91% to £721) and North West (up 8.98% to £692) both outpacing the national percentage rise.”
Download Kate Faulkner's rental and buy to let report for Q3 2022 here
There isn’t a huge amount of rental information on local data for towns and cities, except from Hometrack and the truly fantastic data provided in Scotland by Citylets – if only we had this kind of detail for England, Wales and Northern Ireland!
Hometrack
Big cities register the highest levels of rental inflation
“Rents are increasing fastest in the largest UK cities, led by London where rents are up 17% or £273 per month over the last 12 months. Our index is recording above-average rental inflation in other big regional cities, including Manchester (+15.6%), Birmingham (+12.3%), Glasgow (+14.1%), Bristol (+12.9%) and Sheffield (+12.4%). These cities are seeing demand exceed supply over the last year, being major employment centres with large student populations. Not all cities are registering rapid gains, with Hull, York, Oxford and Leicester recording slower growth of less than 8% - although still higher than the rate of earnings growth (6% to September 2022).”