• Annual UK rental inflation for new lets stands at 3.9%, the lowest rate in three years.
• Rental growth varies widely, from 10.5% in Northern Ireland to 1.3% in London.
• Demand for renting is 31% higher than pre-pandemic levels, although supply is slowly recovering.
• Average annual rental costs have increased by £3,240 since 2021, outpacing earnings growth.
• Need to keep landlords engaged and active in the market by policy leaders
• Rental inflation in 2025 is forecasted to rise by 4%, with more affordable regions leading growth.
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As we approach the end of 2024, the UK rental market continues to evolve, reflecting both challenges and opportunities. With a significant cooling in rental inflation, a narrowing supply-demand gap, and growing affordability constraints, the market is at a cross-roads. Let's take a look...

Slowing Rental Inflation: A Three-Year Low

UK rental inflation for new lets has slowed to 3.9% over the past year, the lowest rate since August 2021. Average rents now stand at £1,270 per month, marking a sharp decline from the 9.1% growth rate seen a year ago. This slowdown is partly driven by an improving supply-demand balance and a gradual recovery in the availability of rental properties.

Regional Disparities: Northern Ireland Leads the Pack

Rental inflation continues to show stark regional variation. Northern Ireland tops the list with a 10.5% annual increase, while London lags at 1.3%, reflecting affordability pressures and a higher base. Notably, rental growth remains stronger in lower-cost areas, both within and outside major cities, as renters prioritize value for money.

Affordability Pressures and Supply Dynamics

Since 2021, the average cost of renting has risen by 27%, equivalent to £3,240 annually. This growth has outpaced earnings, which increased by 19% over the same period. Affordability pressures are particularly pronounced in areas with high rental costs, such as London and other large cities, where rental inflation is expected to remain subdued.

The supply of rental homes has improved slightly, with a 12% year-on-year increase in available properties. However, stock levels are still 18% below pre-pandemic norms. This persistent shortage underscores the need for increased investment in rental housing across all tenures.

2025 Outlook: Modest Growth Ahead

Looking forward, rental inflation is expected to rise by 4% in 2025, driven by markets where rents remain relatively affordable. Rural areas and smaller towns with good connectivity to major cities are likely to see above-average growth, while larger cities and London are set to under-perform due to affordability constraints and modest supply growth.

Final Thoughts

The UK rental market is entering 2025 on a steadier footing. Slowing rental inflation, an easing supply-demand imbalance, and stable tenant demand paint a picture of cautious optimism. However, affordability remains a concern, especially in high-cost areas, demonstrating the need for policy and investment measures to support long-term growth and stability in the sector and encourage landlords to keep active in the market.

Information gathered from personal knowledge, rightmove, zoopla and home.

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