According to Rightmove, despite the record-high advertised rent, rental growth has slowed to 2.4%, when compared to annual increases of around 10% between 2021 and 2023.
Rental growth rose faster in London, increasing 3.2% to a record £2,825 per month.
Rightmove said rents in the capital fell during the pandemic as people left the city, which then resulted in faster rental growth in London as renters gradually returned. Affordability pressure in the city led to stronger growth outside London, but the firm said its latest data suggested momentum was returning.
On the demand and supply side, Rightmove found a 2% decline in both the number of available rental homes and renter demand when compared to the previous year. The firm said limited supply continued to put upward pressure on rents, but this was more moderate compared to the significant supply and demand imbalance seen in previous years.
Colleen Babcock, property expert at Rightmove, said: “Average rents have reached another new record and have now surpassed £1,400 per month outside London for the first time. However, beneath the headline figure, rental growth has continued to settle compared with the exceptionally fast pace we saw a few years ago.
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“Supply remains constrained, which is continuing to put upward pressure on rents, but demand is also more measured. That has helped to create a more balanced market overall, even though affordability remains a challenge for many renters.”
Supply squeeze hitting London rents
Rightmove found that constrained rental supply was having a notable impact on rents in London, as the number of rental homes available has fallen by 9% year-on-year and the number of new listings has also dropped by 7%.
At the same time, renter demand in London has risen by 6% annually, putting more pressure on the supply imbalance than the rest of Great Britain.
Rightmove found that average advertised rents across Great Britain were rising faster where there was more room for growth. However, employment opportunities and requirements to be in London have drawn renters to the city, putting it in third place for annual rental growth.
Landlord activity is also having an impact, as 13% of homes currently listed for sale were previously available to rent, indicating landlord sales. This was slightly up from a proportion of 12% last year.
Conversely, the share of homes available to rent that were previously listed for purchase has fallen from 17% to 15%, potentially pointing to reduced landlord investment.
Mortgage rates making landlords reconsider
Mortgage rates may also be a contributing factor, Rightmove suggested, as the average two-year fixed buy-to-let (BTL) rate was around 5.24%, compared to 4.16% before the war in Iran began. The firm said this made property investment less attractive for prospective landlords, especially in areas where yields might be limited.
Matt Smith, Rightmove’s mortgage expert, said: “One of the biggest challenges for many landlords at the moment is managing the properties they already own when the time to remortgage comes around. New BTL investment has been relatively subdued for some time, and some landlords are still reaching the end of much cheaper fixed rate deals taken out when borrowing costs were lower.
“For those landlords, moving onto a higher mortgage rate can have a significant impact on monthly costs and rental yields. With rent reviews now generally limited to once a year, landlords need to plan carefully alongside refinancing. Where the numbers no longer add up, higher mortgage costs could ultimately influence decisions about whether to remortgage or sell a rental property.”
