Q2 2022 Private rented sector report from Kate Faulkner

publication date: Oct 5, 2022
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author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

Q2 2022 Private rented sector report from Kate Faulkner

 

 Q2 2022 Private rented sector report from Kate Faulkner

The UK’s most comprehensive rental market report

Introduction to the rental market

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: 

  • New lets – these purely look at rents for new properties on the rental market and show the highest rental inflation. They may include new builds or newly refurbished properties.
  • Advertised rents – these are a mix of existing and brand new properties and give an indication of the latest trends in rents.
  • Existing rents – these are renewed lets of properties to existing tenants and have the lowest increases.

 

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 5.5% 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.

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.

Download the full Q2 2022 PRS report from Kate Faulkner here

 

Summary of rental reports

Rightmove 
Rents grow at fastest annual rate in 16 years
“National average asking rents outside London hit another new record of £1,126 per calendar month (pcm), rising 3.5% from last quarter and 11.8% higher than last year.”

Hometrack 
Has rental growth peaked?
“Rental growth is close to peaking at 12.3% per annum. Average rents have risen by £115 per month over the last year to £1,051.”

DPS 
Rents accelerate further after a year of strong growth
“Average UK rents have risen £66 to £870 since Q2 2021, an increase of 8.21%. This reflects the rise in inflation, currently running at 9.40%.”

Homelet 
We expect rental prices for new tenancies will continue to increase
“The average rent in the UK is now at £1,143, up 8.5% from the same time last year and 1.4% from last month’s figure.”

Goodlord 
Cost of rent up 12% year on year, despite mixed August for regions
“The average cost of rent across England dipped by 1% during August, taking prices down to a national average of £1,227.54. This followed a rent average in July which was the highest ever recorded by the Index.”

Propertymark 
More renters staying put as demand hits new peak
“82 per cent of member agents reported month-on-month rent prices increasing in July - a new record. Pressure on rents has been steadfast since spring last year.”

ONS 
“Private rental prices paid by tenants in the UK rose by 3.4% in the 12 months to August 2022, up from 3.3% in the 12 months to July 2022.” (Includes existing and new tenancies)

 

National rental prices

The rental indices are giving some very consistent data now, showing that average rents are around £1,000 a month. Indices with lower rents typically either don’t have so much stock in London, or their rents are including existing tenancies, not just new lets.

The growth figures of 8-12% YoY are staggering and rarely seen in the rental market. The reasons behind this are threefold:

 

  1. The pandemic kept rents artificially low, so some of the rise is due to rents ‘recovering’ to where they should be.
  2. Wages have risen higher than before – 5.5% YoY according to ONS data – and rent rises (or falls) match wage changes.
  3. Lack of stock. When this happens, just as in the buying market, a property comes up for rent, many people apply, and it becomes an ‘auction’. Take the example of Belvoir Edinburgh. They had two flats for rent and received nearly 1,000 applications for both of them!

 

It’s important to understand that landlords aren’t ‘putting up the rent’ and causing these rises, tenants are offering more money to secure the property.

This is especially a problem for the 25-30% of households renting in the private sector on benefits, especially if they are eligible for a social home as the government has capped their Local Housing Allowance and currently there are calls to take this cap off, including from the National Residential Landlord Association.

The key question is, how long will rents continue to rise at this level? Mostly any ‘boom’ lasts for a few months, then drops back to normal +/-4% rise/falls.

 

Rental prices by country

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.

In the rental market, despite landlords and agents being accused of ‘sky rocketing’ or ‘extortionate’ rents, most landlords keep the rent at the same level for the length of the tenancy. Those that understand running rental stock as a ‘business’ know that ideally you should increase rents in line with inflation.

Below, the ONS rents show that rents have anything but ‘skyrocketed’ or been ‘extortionate’ over the last decade. The Bank of England show that inflation since August 2012 to 2021 rose by 28.2%, so average growth of just under 3% per year.

Up until August 2020, the chart below shows the average rental inflation for each country rise anything between:

England:               0.9% and 2.9%
Scotland:              0.8% and 1.6%
Wales:                  0.6% and 1.6%
Northern Ireland:  1.0% and 2.8%

All growth rates pretty much below inflation.

Source: ONS


Since August 2021 however, rental growth has started to rocket across each country:

  1. In England, private rental prices grew by 3.4% in the 12 months to August 2022, representing the highest 12-month growth rate since November 2008. When London is excluded from England, private rental prices increased by 3.9% in the 12 months to August 2022. This is up from an increase of 3.7% in July 2022 and is the highest 12-month growth rate since this series began in 2006.
  2. Private rental prices in Wales grew by 2.5% in the 12 months to August 2022. This is up from an increase of 2.1% in July 2022 and is the highest annual growth rate since this series began in 2010.
  3. Private rental prices in Scotland grew by 3.6% in the 12 months to August 2022. This is down from an increase of 3.7% in July 2022.
  4. The annual growth rate for Northern Ireland in August 2022 (8.4%) was higher than the other countries of the UK. Northern Ireland data have been copied forward since June 2022; the next update to Northern Ireland data will be in our Index of Private Housing Rental Prices, UK bulletin published on 14 December 2022.


As mentioned earlier, this is due to the issue during the pandemic, wage rises allowing tenants to offer more and the terrible shortage of stock in many places across the UK.

Interestingly, Scotland which has had the harshest of regulation and rules changes of all the four countries, doesn’t have the highest rent increases as this goes to Northern Ireland. However, it does appear that versus England and Wales, Scotland’s rental inflation is running higher, suggesting that more regulation/rules is taking it’s toll on tenant rent rises.

Download the full Q2 2022 PRS report from Kate Faulkner here

 

Regional rental prices

On a regional basis, it’s clear that there is an enormous ‘north and south’ divide. Rents in the south are running between £1,800 and £2,200 per month for London while in the North, they tend to be around the £600-£800 mark.

Rental inflation by region appears to be fairly similar though, although it’s important to take the North East results with a ‘pinch of salt’ as they can change rapidly during the year due to the range in the lettings market. 

Source: ONS

Unusually, London is still seeing the lowest growth of all regions, but this is likely to be due to affordability issues, whereas around the rest of the country, there is room for tenants to offer that bit more.

The largest annual rental price increase in the 12 months to August 2022 was in the East Midlands at 4.5%, closely followed by the South West at 4.3% and the North East and East of England at 4.1%.

Overall though, rents aren’t rising in excess of average wage growth (on average) for existing rented homes, for new lets, rent rises are double that of wages, but as Hometrack mention below, these rises are unsustainable and will have to come to a stop soon.

 

Hometrack         
Signs that annual rental growth is close to peaking
“Rents are rising quickly across all parts of the UK, ranging from 7.6% in the North East to almost 18% in London. While the annual growth rate has accelerated in the last year, it is starting to plateau.

“In London, the rental growth pace is simply not sustainable. Current growth figures reflect the rents rebounding off a low base, after 10% fall during lockdowns. Average rents in London are currently 7.8% higher than before the pandemic, compared to the UK-wide average of nearly 13%.

“Another important trend is rental growth in urban areas across England (10.5%) - which is outpacing that of rural markets (8.5%) as strong employment growth drives demand in cities. Higher levels of new-build supply concentrated around city centres is also becoming more appealing to renters looking for smaller homes with lower running costs.”

DPS
Significant annual rent increases seen across the regions
“Across the UK, average rents and have grown in all regions over the last 12 months. The North East region has seen the highest percentage rise in rents, increasing 10.75% (£57) with the West Midlands second highest, rising 10.70% (£69).

“With the exception of Northern Ireland, where annual rents grew by a relatively modest 3.58% (£20), all regions have seen growth in rental rates of 5% or higher, with 8 of the 12 regions experiencing rises over 7%.

“In pure value terms, London saw the greatest increase in monthly rent, rising on average by £124 over the last 12 months.”



Download the full Q2 2022 PRS report from Kate Faulkner here

 

City and town rents

There isn’t 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!

What we are seeing in this data is a real pick up of rents post the pandemic slowdown, and indeed falls in some areas across the country, especially in cities versus rural areas where rental demand/prices are not so high.

Both Hometrack and Citylets provide excellent commentary, so well worth a read!

Hometrack         
“Another important trend is rental growth in urban areas across England (10.5%) - which is outpacing that of rural markets (8.5%) as strong employment growth drives demand in cities. Higher levels of new-build supply concentrated around city centres is also becoming more appealing to renters looking for smaller homes with lower running costs.”

 

Scotland

Citylets
“With two meaningful consecutive quarterly rises, there is clear signal that the Aberdeen rental market is now back to black which will be a relief to landlords after a protracted period of rent declines and stagnation. The average property to rent in Aberdeen stands at £738 per month, up 4.4% YOY.”

“Following unprecedented rises in the capital in Q1 2022, finding property to rent in Edinburgh continued to remain very challenging with rents up a material 15.1% to a new all time high of £1283.”

“The average property to rent in Glasgow stands at £997, up 13% YOY but down from 16% annual growth record last Quarter.

“Property to rent in Dundee also posted a significant milestone recording an average rent higher than its northern neighbour at £767 per month, up 15.3% YOY and a new all time high.”