Renters in the UK are facing a worrying future, with rental prices set to soar by nearly 20% over the next five years, according to a report by estate agent Savills. This significant increase is attributed to the growing gap between demand for rental properties and the limited supply available in the market. Over the next few years, tenants can expect to see a gradual rise in their rental costs, with a sharp 4% hike predicted for 2025 alone.
The overall rent increase is projected to reach 17.6% by 2029, a level that will put further strain on many tenants already grappling with rising living costs. With private rental stock continuing to be squeezed, the imbalance between supply and demand is expected to worsen, exacerbating the problem for renters who are already struggling to find affordable accommodation.
A key driver of this situation is the rising number of landlords exiting the market. The higher costs associated with mortgages, combined with increasingly complex regulations and changes to second home stamp duty, have made property investment less attractive. As landlords pull back, the number of available rental properties continues to decline, further driving up prices.
The situation is being compounded by the fact that fewer new properties are entering the rental market. With fewer landlords willing to take on the financial risk, the pool of available rental homes is shrinking, leaving tenants with fewer options and fewer opportunities to find reasonably priced accommodation. This reduced supply is expected to continue for the foreseeable future.
In the face of this growing crisis, tenants are likely to experience continued upward pressure on their rent. While the rental market has always been subject to fluctuations, the current combination of high demand and limited supply points to a challenging future for renters. As landlords adjust to the changing financial landscape, renters will need to prepare for an increasingly expensive rental market.
The ongoing decline in the availability of private rented properties is set to push monthly rents even higher. This trend is largely due to landlords leaving the market, creating an increasing shortage of rental homes. As fewer properties become available, tenants will find it more difficult to secure affordable accommodation, resulting in higher rent prices across the board.
Although tenant demand has dropped from the record highs of 2021 and 2022, it remains elevated, contributing to the strain on the rental market. The latest data shows that the number of rental listings available per lettings branch was down by 16% in September when compared to levels seen in 2018-19. Additionally, properties are being snapped up 20% faster this year, indicating a fiercely competitive market for tenants.
The shortage of rental properties has been further exacerbated by the rising number of landlords exiting the market. A combination of tighter regulations and the soaring costs of mortgages has made property investment less profitable, leading many landlords to reconsider their involvement in the sector. As these exits continue, the availability of rental properties is expected to diminish further.
Brokers are particularly concerned that more landlords will follow suit, particularly after the recent announcement by Chancellor Rachel Reeves regarding the increase in second-home stamp duty. This tax grab is expected to deter potential investors, worsening the already challenging landscape for renters. If the trend continues, the rental market will likely face even greater supply shortages, putting additional pressure on tenants.
As landlords pull out of the market and tenant demand remains high, renters can expect to see further increases in rent prices, with availability continuing to be a major issue. The future of the private rental market looks increasingly uncertain, and the squeeze on affordability is likely to persist for the foreseeable future.
Guy Whittaker, associate director at Savills, highlights that the recent increase in the stamp duty land tax surcharge for second homes is expected to dampen demand from new buy-to-let investors. This move could also deter some existing landlords from expanding their portfolios, as the higher tax burden reduces the potential for profitable returns on investment.
Another factor that could drive landlords out of the market is the potential requirement to upgrade energy performance ratings by 2030. In some areas, the cost of these necessary upgrades could be so high that it outweighs the income generated from rental properties. In such cases, landlords may find it more financially viable to sell their properties rather than invest in expensive upgrades, further reducing the availability of rental properties.
Despite these challenges, Savills notes that rental growth in some markets could begin to slow due to an ‘affordability ceiling’ being reached. This refers to the point where rent prices have increased to a level that is no longer sustainable for tenants. In London, for example, tenants spent as much as 43 per cent of their income on rent in 2023. This high level of expenditure has led to a situation where further rent increases may be limited, as tenants can no longer afford to pay more.
With rental prices reaching unsustainable levels in some areas, the future of the rental market may be at a crossroads. While landlords face increasing costs and regulatory pressures, tenants are also feeling the strain of rising rents, leading to potential shifts in demand and supply in the coming years. As these market dynamics unfold, it remains to be seen how the rental sector will adapt to these changing conditions.
In conclusion, while there are factors that could slow rental growth in certain markets, the overall outlook for the rental sector is complex. The combination of regulatory changes, affordability concerns, and rising costs could have significant impacts on both landlords and tenants, shaping the future of the private rental market.
Rents in London grew by just 1.5 per cent in the 12 months to September 2024, a notable slowdown compared to the 4 per cent increase seen across the rest of the UK. This slower pace of growth can be attributed to stretched affordability in the capital, where rising rent prices have begun to reach a point where many tenants are finding it increasingly difficult to keep up with costs.
Guy Whittaker, from Savills, explains that this slower growth in London has helped to ease some of the affordability pressures that tenants have been facing in recent years. Savills is forecasting a more moderate increase in rents for the capital in the coming year, with an anticipated growth of 2.5 per cent for 2025.
Looking further ahead, Savills predicts slightly stronger rental growth towards the end of the forecast period, in 2028 and 2029. During these years, rents are expected to rise by 3 per cent, reflecting a gradual recovery and increased demand for rental properties in London.
However, despite this expected recovery, the capital’s overall rental growth for the five-year period leading up to 2029 is forecast to be just 14.2 per cent. This is significantly lower than the predicted growth across the entire UK, which is expected to be 3.4 percentage points higher than that of London.
This slower growth in London suggests that while rents may rise over the next few years, the capital will not see the same levels of growth as other regions, where demand for rental properties remains strong and affordability pressures are less severe.
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