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  • Rents rose as much in 2023 as they did between 2016 and 2020 combined 
  • But will they grow at the same pace in 2024?

Average monthly rents jumped 10.2 per cent in 2023, equivalent to all of the increases between 2016 and mid-2020 combined. If you are among the 19 per cent of households renting, this won’t have passed you by. 

The increase has left the average new tenant spending £343 a month more, and analysts at Hamptons think that “most landlords and tenants have never experienced a rise in rents like the surge of 2023”. But change could be on the horizon: economists expect rents to fall (or at least moderate) this year.


Why have rents risen so much?

Rising interest rates are one explanation. Higher mortgage costs have discouraged new buy-to-let landlords from entering the market, while encouraging some existing landlords to sell up. A lower supply of rental properties has therefore put upward pressure on rents.

Far more significant is the impact of landlords passing higher borrowing costs onto tenants. According to Hamptons, by the third quarter of last year, the average landlord with a mortgage spent 37 per cent of their rental revenue on mortgage interest. The figure stood at just 24 per cent in November 2021, as the chart below shows. 


At the same time, higher interest rates have (paradoxically) increased demand from renters. Rising mortgage rates have strained affordability, leaving would-be homeowners trapped in rental accommodation for longer. Data suggests that in the four years after the financial crisis, an extra 1mn people turned to renting, finding themselves unable to meet higher mortgage payments under newly tougher borrowing rules. Hamptons anticipates “a repeat of this period of stretched affordability” in the years ahead. 

There is another more abstract rationale, too. For buy-to-let landlords, housing is overwhelmingly an investable asset. As returns on other assets have increased due to rising interest rates, even landlords without mortgages are likely to increase rents in order to match the expected returns that they could get elsewhere. Research from the Bank of England (BoE) suggests that for a 1 per cent increase in the interest rate, the rental yield rises by almost 0.4 per cent, with the biggest effects taking around 12 months to filter through. 


What will happen to rents this year? 

BoE economists think that rising interest rates only cause a temporary increase in rental prices. As higher rates weigh on the housing market, house prices drop, allowing more landlords to come to the market, putting downward pressure on rents.

This increased supply should be met with lower demand, as tenants (squeezed elsewhere by the impact of higher interest rates) become unwilling to accept higher prices. In fact, models suggest that rental prices should start to decline about 18 months after rate hikes as the housing market starts to adjust.

But whether this plays out in practice is another matter. There is firstly the uncertainty of the election to contend with. Hamptons says that the government will “be keen to lessen the cost of living squeeze”, and could introduce measures to moderate tenants’ outgoings that add more to landlords’ costs. They warn that this will only  (inadvertently) increase rents further over the medium term.

But as rate cuts come into view, rental yields could start to look more attractive again. Hamptons analysts think that less generous returns on deposit accounts could persuade landlords to add to their property portfolios. Yet the increase in supply will probably not be enough to drive rents downwards again, and given that interest rates are expected to remain elevated, pressure on returns (and costs) will remain. Hamptons analysts predicts growth will stay above pre-Covid levels in 2024 as a result.

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