The average cost of renting a home in the UK has risen more than four times as quickly as national average incomes, according to new findings released today from the May 2014 HomeLet Rental Index. The data also suggests that new, more affluent tenants are entering the rental sector, potentially putting pressure on those on lower incomes, who may find it increasingly difficult to meet the rising cost of renting a property.
The HomeLet Rental Index, the largest survey of private tenants in the UK, shows that the average UK private home rents rose by 7.5% over the year to May 2014. By contrast, the most recent statistics from the Office of National Statistics show that national average earnings are currently rising at a rate of 1.7% a year.
The average rent in the UK now stands at £846 a month, compared to £787 a year ago. While this figure was inflated by very large rental increases in East Anglia and Greater London, where rents were up by 10.7% and 9.4% respectively, rent rises outstripped increases in average national earnings in eight out of 12 regions of the country.
The report also highlights that tenants signing new rental agreements do have significantly higher incomes than those who took on properties 12 months ago. The average tenant signing a rental agreement in May this year had an income that was 7.2% higher than those who signed agreements in the same month of last year. These results suggest that a new, more affluent type of tenant – possibly people for whom house price rises and mortgage market tightening have made purchasing more difficult – is now looking for rental property.
Martin Totty, Barbon Insurance Group’s Chief Executive Officer, said:
“The private rental sector continues to see strong demand with the incomes of tenants taking on new properties rising in line with the rents charged by landlords.
It remains to be seen if anticipated central bank intervention in the mortgage market will stimulate further demand in the private rental sector at the expense of home ownership, and whether this will generate positive response from would-be buy-to-let landlords channelling some of their newly freed-up pension savings into investment property.
Our results indicate some increase in the longer term trend of annual rate of rental value growth, especially in regions in the South of the country.”
Mr Totty believes that the rental market may be attracting new more affluent renters, either through preference due to uncertainty in the mortgage market or as a result of the recent sharp increase in house prices.
With the private rental sector playing an ever more important role in the UK’s housing market given the pressures on would-be purchasers, it is vital that rents remain affordable while still offering attractive returns to landlords.
“There is good reason to think rental property will become even more predominant, so it will be crucial to continue to monitor the relationship between income and rents,” Mr Totty concludes.
