Editor's note: This brief was summarised by The Property AI Newsroom from a report by Mortgage Solutions. Read the original article for full details.
Rents rise as higher mortgage rates squeeze supply
UK rents rose 2.6% in the year to June, reaching an average of £1,340, according to research by Zoopla reported by Mortgage Solutions. That is up from growth of 1.6% in the year to February, with the firm predicting rental growth of around 4-5% by the end of the year.
The rise reflects sustained demand and a fall in available rental homes. The number of homes available to rent has fallen 3% year-on-year, the first drop in supply in three years, including a 6% fall in August.
Why supply is tightening
Zoopla said higher mortgage rates are making home purchases harder for first-time buyers, keeping more of them in rented accommodation and pushing up demand. Higher rates have also dampened landlord investment, alongside tightened regulations and rising costs.
The decline in rental homes began in May, ending a three-year recovery in rental supply that had contributed to easing rent rises over the previous two years. Zoopla noted that demand for rented homes usually rises between July and September, but rising mortgage rates this year have added to demand, particularly in London.
Currently, the number of enquiries per rental listing stands at 5.3, 6% higher than last year and the highest level in nearly two years.
Regional picture
Zoopla found that rents rose fastest where declines in available rental properties were greatest, attributing higher rents to a lack of supply rather than a notable rise in demand. London was the only region where rental supply and demand tightened at the same time.
The largest rent increases were recorded in London and Yorkshire and the Humber, which saw supply declines of 6% and 12% respectively. In contrast, the sharpest slowdown in rental growth was seen in Wales, where the number of homes available for rent rose by 7%.
Zoopla disputed the suggestion that falling supply elsewhere was linked to the implementation of the Renters' Rights Act in England, noting that a similar trend of falling rental supply and higher rents was also seen in Scotland.
What the market commentary says
Knight Frank's head of UK residential research, Tom Bill, was quoted in the report as saying that rising mortgage rates are exacerbating the imbalance between low supply and high demand as more tenants stay put, following years of landlords leaving the sector amid red tape and taxes. He added that the Renters' Rights Act has aggravated the situation, with some landlords setting higher asking rents to compensate for increased risks around void periods, rent collection and regaining possession.
Richard Donnell, executive director at Zoopla, said the rental market is tightening again after three years of improving supply, and that higher mortgage rates are keeping would-be first-time buyers in rented homes for longer just as the seasonal upturn in demand gets into full swing. He added that affordability remains an important constraint on how far rents can rise, and that upward pressure on rents is greatest in London.
Source: Mortgage Solutions