Landlords are being advised to prepare for an increase in tenants falling behind on rent payments. According to tenant referencing firm HomeLet, rental prices are continuing to rise faster than household incomes, putting more pressure on renters’ finances.

HomeLet, which processes references for over a million tenants annually, has noted that the ratio of household income spent on rent has seen a significant rise over the past decade. This growing disparity between wages and rent costs is creating added financial strain on households.

As rental affordability declines, landlords may see a growing number of tenants struggling to keep up with payments.

Across the UK, tenants now spend an average of 32.6% of their gross income on rent, up from 26.8% a decade ago. Andy Halstead, CEO of HomeLet and Let Alliance, expressed concern that renters will continue to allocate more of their income towards rent.

Halstead described the rental market as increasingly challenging and suggested that tenant affordability will be a key issue in 2025. He also noted that the outlook isn’t positive, adding that every indicator points towards growing difficulties in the rental sector. Echoing recent remarks from the Prime Minister, he warned that “things will get worse before they get better.”

Where do rents eat up the most of tenants’ income? 

In some regions, the income-to-rent ratio has risen sharply over the past decade, with London experiencing one of the steepest increases. Back in August 2014, renters in London were spending 28.1% of their income on rent. Today, that figure has climbed to 38.9% on average.

The average salary in London is around £44,000 per year. Based on HomeLet’s data, a renter earning this amount would spend roughly £17,116 annually on rent. After income tax and national insurance, that leaves about £18,084 to cover other expenses like bills, food, and travel.

This means nearly half of a London renter’s net income is now going towards rent. This figure doesn’t include further deductions like pension contributions or student loan repayments, which can significantly reduce disposable income.

For those choosing to live alone in London, the costs are even higher. The average rental property in the capital now commands £2,148 per month, or £25,776 annually. As a result, many London renters opt for flat shares or living as couples to manage these costs.

Tenants in the East of England are now spending a larger share of their income on rent compared to a decade ago. On average, households are using 34% of their income for rent, up from 26.6% ten years ago. The North East of England has also seen a notable rise, with households now allocating 31.8% of their income to rent, a significant increase from 22.4% in 2014.

Despite these pressures, not all regions have experienced drastic changes in rental affordability. HomeLet data shows that renters in Scotland and the North West of England have only seen modest increases. In both areas, tenants continue to spend less than 30% of their gross income on rent.

Andy Halstead of HomeLet warns that as tenants allocate more of their income to rent, they are becoming increasingly vulnerable to falling behind on payments. He believes this poses the biggest risk for landlords, surpassing concerns about no-fault eviction bans, EPC rule changes, and tax increases.

Halstead points out that rising living costs, including increased taxes, fuel duties, and essential services, are putting tenants under growing financial pressure. This financial strain is leading to a higher likelihood of rent arrears, which he identifies as a major concern for landlords moving forward.

Will rents keep rising?

Rents across the UK are increasing at a slower rate compared to the rapid growth of the past three years, according to HomeLet data. The annual rental growth rate has dropped to 5.1%, down from the double-digit increases seen between 2021 and 2023. On average, rental properties now cost £1,325 per month, with the figure dropping to £1,126 per month when excluding London.

Despite the overall slowdown, August saw a significant jump, with a 1.3% rise in average rents across the UK—higher than the previous two months combined. While the national market remains strong, the most notable increases are occurring outside London, marking a shift in the rental landscape.

The East of England and the North East have experienced the sharpest rent hikes, with annual increases of 9.4% and 9.2%, respectively. In the East of England, the average rent now stands at £1,302 per month, up from £1,190 last year, including a 1.4% rise in the past month alone.

Letting agents quoted in the latest market survey by the Royal Institute of Chartered Surveyors (RICS) report that demand for rental properties is exceeding supply. 

David Boyden of Boydens estate agents in Colchester noted that demand remains strong, with stock levels dipping slightly during the month but showing signs of recovery post-election. 

Kevin Burt-Gray of Pocock + Shaw estate agents in Cambridge echoed this sentiment, highlighting a shortage of available properties and multiple applications being submitted for most property types.

In London, where rental prices are the highest in the country, demand has remained relatively stable compared to last year. However, rents in the capital did rise by 2.2% in August, reaching an average of £2,148 per month.

The RICS survey suggests that London’s rental market may be hitting a ceiling, with more properties becoming available. Javier Lauret of Hurford Salvi Carr estate agents in London observed that landlords are beginning to accept that rents are softening after last year’s boom. Marcus Goodwille of Savills in London added that while prime London rental values continue to rise, the rate of growth has slowed significantly compared to recent years. Market conditions are stabilising as more stock becomes available, and affordability challenges limit further rent increases.

In the North East of England, traditionally one of the most affordable regions in the UK, tenants are seeing a significant rise in rental prices, according to HomeLet. Rents in the area reached £715 in August 2024, up from £655 in the same month last year, showing a 1.9% increase since July.

HomeLet highlights this as a notable shift, with the North East becoming a more competitive option for renters seeking affordable housing. However, local letting agents fear that rents will continue to rise as more landlords exit the market. 

David Shaun Brannen of Brannen & Partners estate agents in Whitley Bay, Tyne and Wear, commented in the latest RICS market survey: “The new Government needs to find ways to encourage landlords back into the private rental sector to boost supply and meet the ongoing high demand.”

Northern Ireland experienced a slight decrease in rental prices, with a 0.3% drop from the previous month. Despite this, rents have risen by 6.8% year-on-year, showing continued demand in the region. The average rent in Northern Ireland now stands at £898.

Wales and the South East reported similar annual increases, both seeing rents rise by 7.5% over the year. The West Midlands and North West also showed strong growth, with rents increasing by 8.3% and 8.1%, respectively. Meanwhile, Scotland saw a more moderate annual increase of 3.4%.

Download NOW 

4 Simple Steps To Becoming Wealthy Through Property

DOWNLOAD