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Rental yields by England and regions
Private rents are still rising ahead of the long-term norm of 2%+ per annum but have slowed to 4-5% pa. This is because wage growth is slowing, limiting tenants' affordability; supply is rising a little, and demand is starting to drop. Although many accuse landlords of driving rental growth, it is increasingly looking like the demand and supply imbalance, mainly caused by a huge increase in net migration, is the key problem.
Rightmove
Record high rents as landlords brace for budget impact
“Average advertised rents outside London hit a 19th consecutive quarterly record of £1,344 per calendar month (pcm), up 5.2% from last year, although this is the slowest rate of growth since 2021.”
Hometrack
5.4% annual rental inflation for new lets, UK
“Rental inflation slows to 5.4%, the lowest for almost 3 years (Sep-21).”
Homelet
Average rents continued to rise slightly in September across the UK to £1,331 per month
“The annual growth rate of 4.3% per annum is the slowest rate of growth since May 2021.”
Goodlord
The year-on-year rise continues
“2024 rents continue to outpace their year-on-year averages, with September prices up by 5%.”
Propertymark
Tenant demand increases
“Overall, demand continues to outstrip supply, with an average of almost 10 new applicants registered for each available property in August 2024.”
ONS
“Average UK private rents increased by 8.4% in the 12 months to September 2024 (provisional estimate); this is unchanged from the 12 months to August 2024.”
New rental growth across the indices has now started to fall from double digits back toward levels seen in 2022 when the number of people chasing a let grew substantially (vs ONS rent rises).
ONS Private Rented Sector Index
Source: ONS
For the FULL version of Kate Faulkner's PRS and BTL report - download here
Rents across the new lets’ indices show that the North East tends to be seeing the strongest rental growth – which isn’t a surprise as it’s one of the most affordable areas, so it has a better capacity to rise. Rent rises range from 7.7% to over 9% for Hometrack.
In contrast, rents in London are rising at the slowest pace – shown by all the indices. Rightmove and Hometrack report rises of 2.5%, while Homelet is recording a lower rise of 1%. These rises are for new lets, though. According to the ONS, though, London is seeing the highest rise – likely because it covers existing rents, not just new lets.
ONS
“London was the English region with the highest rents inflation in the 12 months to October 2024, at 10.4%. This annual rise was higher than in the 12 months to September 2024 (9.8%), but below the record-high annual rise of 11.2% in March 2024.
“Rents annual inflation was lowest in Yorkshire and the Humber, at 5.9% in October 2024. This annual rise was lower than in the 12 months to September 2024 (6.3%).
“In October 2024, the average rent was highest in London (£2,172) and lowest in the North East (£694).”
Goodlord
“These figures also vary intensely by region with some areas still recording far higher than average year-on-year rental increases. In the South West, for example, average rents are up by a huge 11% compared to September 2023.
“The smallest year-on-year increases were seen in the North West and the West Midlands, with rents in each of these areas experiencing a rise of 2-3%.”
For the FULL version of Kate Faulkner's PRS and BTL report - download here
Some great data from Zoopla this month shows the difference in rental inflation between cities and small villages. London is showing the lowest rise this year (+2.5%) but this is post a mega 12.2% rise in 2023. Other ‘core cities’ outside of London are showing a smaller rise this year of 5.8%, while Large and Medium towns are seeing a 7%+ rise year on year.
What the chart shows is that areas that are seeing lower rises tend to be the ones that saw the highest rises in 2023, which has put pressure on affordability.
Hometrack
Cities recording slower rental growth
“London and other major cities across the UK have been leading the slowdown in rental inflation. The UK’s largest cities have recorded some of the greatest gains in average rents, averaging over 10% per year for the last 3 years. This pace of rent rises is unsustainable and means affordability is starting to impact rental growth.
“Segmenting our rental index by type of area2 shows the greatest slowdown has been in London, where rents are rising at just 2.5% - down from over 12% last year. Rental growth is slowing quickly across the UK’s other largest cities, the so-called ‘core cities’, with rents 5.8% higher over the last year - down from 10.7% a year ago.
“Cities are major hubs of rental supply and together London and these 12 core cities account for 30% of all private rented homes (and just 13% of local authorities). The remaining 70% of rented homes are spread across other cities and towns of different sizes.
“Rental inflation in these non-city areas continues to run at an above-average rate of 6.8% to 7.4% a year. This reflects demand being pushed into more affordable areas, often adjacent to larger cities which are key employment centres.”
Strongest and weakest rental markets
“Rental inflation remains in double digits across six postal areas, which are all adjacent to large cities, led by Kilmarnock (KA, 13%) to the south-west of Glasgow and Kirkcaldy (KY, 12%) in the east of Scotland. Rent controls in Scotland have played a part in pushing rents higher. In England, rents continue to rise quickly in Wolverhampton (WV, 12%) ,Oldham (OL, 11%), Darlington (DL, 10%) and Walsall (WS, 10%), which are all adjacent to large cities.
“Rental inflation is less than 2.5% year-on-year in South West London, West London and East London postal areas. Rents in these areas are more than double the national average, with affordability acting as a major constraint on rent rises.”
For city and town rents, including Scotland - download the FULL version of the report here
Although rent rises are mainly reported as greedy landlords ‘cashing in’ on tenants' struggles to find a property, it’s clear that rises in rents caused by ‘old fashioned’ economics of restricted supply and rising demand are difficult to hold back artificially.
This is proved by the disastrous rent control introduced in Scotland which has restricted supply, worsened the imbalance and led to higher rent rises than other countries. The emergency rent cap started “on September 6, 2022 and ended on April 1, 2024”. As the ONS chart below shows, Scotland experienced the highest rent rises versus England, Wales and Northern Ireland:
Rightmove
“The balance between supply and demand continues to improve compared with last year, but local letting agents are still very busy with high numbers of tenants looking to move.
“The average number of tenant enquiries for each rental property available has fallen to 15, down from 23 at this time last year, but still nearly double the 8 recorded in 2019. Meanwhile the number of available rental properties is now 13% higher than last year, though still 27% below 2019.”
Propertymark
“Overall, demand continues to outstrip supply, with an average of almost 10 new applicants registered for each available property in August 2024.
“Overall stock levels and the average number of properties available for rent at each member branch, increased in August 2024.”
Hometrack
Demand weakening off a very high base
“Demand for renting has cooled over 2024 but remains high by pre-pandemic standards. The chart below shows the number of enquiries per rented home each month over the last five years.
“The post-pandemic period saw demand for rented homes rising to record high levels, which, together with falling supply, pushed rents higher. Rental demand started to rise quickly over H2 2021 as the economy re-opened. This accelerated over 2022 with a resumption of international travel and changes in visa rules for workers and students at a time when the UK jobs market was also strong. Two years ago, there were over 40 people chasing every home for rent.
“Demand for renting was further compounded by the jump in mortgage rates over H2 2022 and 2023. This made buying more expensive, keeping would-be buyers in the private rented sector and exacerbating demand.”
Rental demand to remain above average
“There has been a clear step down in rental demand over 2024 as ‘one-off’ pandemic factors fall away and lower mortgage rates enable some renters to buy, freeing up homes for rent. Visa rules for students and workers have been tightened and are likely to reduce levels of net migration, although the scale of change is unclear.
“The competition for rented homes is still running at 2x pre-pandemic levels. We expect demand to remain elevated into 2025 despite a softening labour market. The unaffordability of homeownership will continue to support demand for renting, especially across southern England where a sizeable proportion of workers are unable to buy. A lack of a meaningful growth in the supply of affordable housing means the private rented sector will continue to meet demand from those on lower incomes, adding to demand.”
For the FULL version of Kate Faulkner's PRS and BTL report - download here
It’s not a huge surprise that the North East is topping the charts for yield – prices are relatively low due to the fact that they haven’t kept up with inflation since 2005 and it’s showing the lowest house price growth since this time versus other regions. In comparison, rents in this region are growing fast due to affordability.
Areas such as London continue to see the lowest yields, although the gross yields are up (although not net if they have a mortgage) for some properties where rents have risen faster than prices – especially, for example for flats.
Paragon Bank
Northern regions top rental returns table
Source: Rightmove
Our forecast report from the indices below shows that rents are expected to continue to rise higher than inflation and also higher than property prices over the next year. This is a rare thing – normally prices rise a lot faster than rents.
Rents also tend to rise in line with wages and this trend or ‘rule of thumb’ continues and, as long as wages rise faster than inflation, unusually for rents, they will continue to rise in excess of the governments target of 2% inflation.
Here are the forecasts from the different indices:
Savills
“Nationally, we expect that the imbalance of demand over supply will continue to override affordability, at least in the short term, as there remains headroom to push spend on rent. This means we anticipate rental growth in the order of 4.0% across the UK in 2025.”
JLL
“JLL forecast UK rents will rise 17% over the next five years, with rental growth in the London expected to total 18% over the same period.”
Knight Frank
“In both PCL and POL, we expect growth of 3.5% in 2025 rising to 4% in 2027 (up from figures of 3% and 3.5% in August). Meanwhile, our mainstream rental forecasts are largely unchanged.”
Hometrack
“We expect rental inflation to slow to 3-4% by the end of 2024 as weakening demand and affordability pressures limit rental growth. Weaker rental growth in cities will lead the slowdown, but there is a large rental market outside cities where there is room for above average growth. This explains the more drawn-out slowdown in rents. Tax and policy change will continue to see some landlords exiting the market, keeping supply constrained. This will keep an upward pressure on rents into 2025.”
CBRE
“From 2024 onwards, we expect growth to decelerate because of falling inflation and stretched affordability. Across the five-year period, we forecast a compound rental growth of 17.9% across the UK and 16.9% across London.
“Rental values on new tenancies are forecast to grow by 24.3% across the five-year period, at a faster pace than our whole-market forecast.”
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
Typically, we know rents don’t fluctuate much from one month to the next and are capped by wage growth. As such, in the past, whenever we see large fluctuations, we investigate what’s causing it in case it’s a stats anomaly.
However, this changed in 2022. Newly let rents started to rise into double digits – for the first time since rents have been properly tracked. This is partly due to wages rising 4.8% YoY (Source: ONS) and now due to a huge shortage in properties to rent. This has been caused by:
Landlords leaving the market
This is partly because they are retiring and partly because it’s tough to meet the 170+ rules and regulations.
Fewer new investors
This is due to prices rising more than rents (up until the last few years), making it difficult in some areas for investment to work; the loss of S24 – meaning landlords are having to pay tax on turnover if they have a mortgage rather than profit. And finally, due to mortgage rates returning to their long-term norm of 5-6% versus the 2-3% or less since the 2007/8 recession.
Increase demand due to population and migration growth
Since 2022, the population in the UK has risen from 67,602,800 to 68,265,200, a rise of around 662,400 people. According to latest migration statistics, much of this rise is due to net migration with people moving to the UK from abroad. According to the Parliamentary Office of Science and Technology, “80% of foreign-born migrants resident in the UK for less than five years live in the private rented sector, compared to about 20% of the UK-born population. Migrants with over a decade of residence tend to demonstrate similar levels of owner occupation to the UK-born population. About 20% of migrants live in social rented accommodation, similar to the UK-born population.”
Zoopla have shown vast increases in the number of people competing for a rental property – and this coincides with the huge increases in migration – as shown by the chart on net migration below.
Source: Zoopla
Sources: ONS and Houses of Parliament
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