More homes hit lettings market as sales stall: Will rent rises slow down?

More homes are going up for rent, as stubborn owners increasingly shift from selling to letting when they don’t get the price they want. 

Two years of near-double digit rent increases have seen renting become increasingly expensive, with demand from tenants far outstripping the supply of homes.

The average rent in the UK as of July this year is £1,243, according to the HomeLet rental index – a 10.3 per cent increase on the same time last year.

However, the number of homes to rent has been creeping up across the UK over the course of the past year, according to a number of letting agents contacted by This is Money – so could the pace of rent rises start to slow down? 

According to the estate agency group, Connells, which has more than 1,200 branches represented by 80 brands across the UK, the number of rental homes has increased by 8 per cent since March this year.

Stephen Nation, lettings director at Connells Group, says: ‘The sales market hasn’t been enough to tempt the majority of landlords and the rental market remains an attractive option.

‘This means we are actually seeing a slight increase in the supply of available rental property compared to last year.

‘However, demand from applicants is still outstripping supply, and as we enter the late summer an upward pressure on rents continues in some areas.’

The estate agent Hamptons says there are now 17 per cent more homes on the rental market than there was at this time last year.

However, its data also shows that the year-on-year comparison masks a big drop in the amount of properties for rent towards the tail end of the pandemic lockdowns.

There are still 43 per cent fewer rental homes on the market than there were in 2019, with every region of the country recording a fall of at least 25 per cent, and Scotland leading the way with a 65 per cent drop.

David Fell, a senior housing market analyst at Hamptons believes that rent rises  are unlikely to subside until mortgage rates begin to fall.

He says: ‘While the small increase in stock may take the edge off rental growth, as long as mortgage rates remain elevated, rents will continue to reflect the large jump in landlord’s mortgage costs.

‘It’s hard to see rises in rents begin to stall or even reverse until lower mortgage rates reduce the squeeze on investors and potentially tempt in some new landlords. Until then it will be tough and expensive to find somewhere to rent.’

London could see biggest drop-off in rents 

It is in London where we may begin to see rent rises begin to slow down first. 

There were 39 per cent more rental properties on the market in July 2023 compared to last year, according to London-based letting agent, Chestertons.

Meanwhile, it says the number of new renters entering the market has fallen by 5 per cent.

Chestertons says that with more properties to choose from and slightly less competition, renters in the capital often now have the upper hand during price negotiations.

This shift in power has seen 88 per cent more landlords than this time last year being willing to reduce their asking rent in order to secure a tenant for their property.

Cuts? Although rents are unlikely to fall, more rental properties on the market will prevent rents from continuing the double-digit annual increases

Richard Davies, chief operating officer at Chestertons, says: ‘Earlier in the year, London was suffering from a severe lack of rental properties.

‘However, with the sales market proving challenging, many would-be sellers have decided to put their property up for rent rather than sell.

‘This has temporarily boosted the number of rental properties and prevented rents from continuing the double-digit increases that we have witnessed since 2021.’

Similarly, agent Knight Frank reports that a long-awaited supply increase in the London lettings market is underway.

It says the number of lettings instructions in July in London was 18 per cent higher than the same month last year, and the highest for any single month since October 2020.

Jon Reynolds, head of north and east London lettings at Knight Frank, said: ‘Some of the stock that has gone across from lettings [to sales] has sold, but we are unquestionably seeing more stock come back to lettings.’

Knight Frank says that rental value growth has continued to calm as supply improves, but it’s still strong by historical standards.

In prime outer London, which includes sought-after areas such as Wimbledon, Battersea and Wapping, rents grew 12 per cent in the year to July, which exceeded the growth of 11 per cent seen over the entire decade before the pandemic.