How have rents performed vs forecasts in 2022 so far?
The Government’s Index of Private Housing Rental Prices, produced by the Office of National Statistics, showed that rents in many areas were static to falling from 2020 and through most of 2021.
Their figures show that in the 12 months to December 2021:-
- Rents in the UK rose by just 1.8%
- Rents in London fell by 0.1%
Around the country, rental rises did vary with the East Midlands and South West rising the most by just over 3%, while rents in the South East and North East rose by just over 2%. Tiny changes though considering the general cost of living rose to 5.4% in December 2021.
The story of rental changes throughout most of the pandemic was flat or falling rents, but towards the end of 2021 as wage growth rose by 4.3% in Q4, this enabled many renters to pay more for new lets. Meanwhile, many existing renters continued to benefit from below inflation rises.
Off the back of this ‘roller coaster’ ride for rents in 2021, forecasters predicted rises of a few percent through to over 5% in 2022. Zoopla’s forecasts for this year were 4.5% for UK rental growth (excluding London) and the expectation was London’s rents would recover from their pandemic falls and rise by 3.5%.
What has happened so far in 2022?
Even though property prices have risen quite rapidly during the pandemic, rents don’t always follow. The key reason for this is over time we know rents tend to track wage growth. Unlike when buying a house and securing equity which reduces the relationship between income and purchasing a home, renters don’t enjoy the same benefit, so can only afford what their earnings allow. As a result, rents have typically risen on an annual basis of just below or on par with general inflation of 2-3%.
However, we are in times when neither property prices or rental markets are performing normally and the key factor affecting rents this year is that, probably for the first time we have ever known, we have less rental stock available for tenants than we do properties available to buy.
As tenants have either stayed put over the pandemic or decided to move for more space, especially a garden, this has led to a drastic shortage of properties available to rent. And with people moving back to the cities post the pandemic, rents have started to rise in line with house prices and, in some cases even beyond wage growth.
Currently the ONS, Zoopla, and many other rental indices are recording the fastest rental growth we have seen:
- Private rental prices paid by tenants in the UK rose by 3.0% in the 12 months to June 2022
(the largest rise recorded since the index began in 2016)
- London rents rose by 1.7%
- Rents in the East Midlands rose the most, up 4.3% close to rises seen in the South West (4.1%) and East of England (4%)
Zoopla’s rental index is reporting for the first quarter of 2022:
- The cost of renting a home has reached nearly £1,000 a month as rents rise at their fastest pace for 14 years
- Increases have been highest in London, where they have soared by 15.7% in the year to the end of March
- In contrast, rents have increased by only 6% in Scotland and 6.9% in the North East
At Leaders Romans Group, which scottfraser is part of, we are seeing:
- Asking rents increase significantly on properties becoming available to relet, with a nationwide average of 12%
- In some areas, where demand is outstripping supply the most, we are seeing rental increases of up to 30%
The reality for 2022 so far is that rents are rising across the country, mostly, at faster rates than we have seen before.
In areas like London though, it’s worth noting that this is more to do with rents recovering from the lows seen during the pandemic.
Outside of London, the incredibly low stock levels are driving rents upwards, with areas such as Manchester rising by 14.3% in the first quarter of 2022, while other areas, with more balanced stock levels, such as Aberdeen, are seeing rises of 6.5%. Considering rents tend to rise in line with wage growth, which is currently high at 5.1%, it’s not a surprise that rents are rising rapidly, but it is unusual for them to surpass wage growth for such a sustained period as much as they are currently.
How does this impact landlords and tenants in 2022?
From a tenant perspective, things are going to be tough this year. With general inflation now over 10% and with rents and particularly utility bills rising, finding an energy efficient property with an EPC rating of C or above as soon as possible is the ideal scenario for those that need to move.
From a landlord’s perspective, there are two things to consider. Firstly, if you are letting to an existing tenant, it is important to raise rents if you can in line with the market to help you cover your own extra costs from rising bills and your own cost of living. Secondly, if you are looking to let to a new tenant, do get in touch with us to understand the current market rate for a property you let and understand any changes you can make to attract the highest paying and best tenants.
For more information on local rents and to make sure you are letting your property legally, get in touch with your local expert.
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