Rental trends in the London Property market

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The UK rental market has seen significant changes over the past few years, with rising interest rates, inflation, and population growth in London putting pressure on housing demand and costs. As we move into 2024, a complex mix of factors looks set to shape rental trends going forward. 

With the Renters Reform Bill poised to overhaul tenant rights and conditions, the upcoming general election potentially swinging housing policies, and signs emerging that the red-hot rental growth of recent years may be cooling, it remains to be seen how rents will move this year. 

However, examining factors like evolving supply-demand dynamics, changing regulations, and macroeconomic forces provides insights into the outlook. For landlords and tenants alike, understanding the key drivers at play will be crucial to navigating the rental market in 2023 and beyond. 

By reviewing historical data and projected impacts of policy reforms, economic shifts and population changes in key cities, we can gain a sense of what to expect in the year ahead.

property forecast in the uk

What is expected this year in 2024?

In order to being dissecting what will happen this year in 2024, there has to be an analysis of what has happened in the past

What happened in 2023 Vs 2022?

In December 2023, UK house prices saw a decline of 1.8% compared to December 2022, bringing them nearly 4.5% lower than the peak recorded in late summer 2022. When factoring in seasonal effects, prices remained unchanged compared to November. Read more about this study from Nationwide here.

An increase in interest rates

Going in to 2023, base rates were already high at 3.5%. A figure not seen for over a decade in 2009. In general, high interest rates make buying property very expensive as it becomes difficult to get a mortgage and hence, the average rent tends to increase.

Interest rates then increased further throughout the year and these increases began as soon as 2023 started. The Bank of England’s meeting at the beginning of February 2023 came to the conclusion that  there will be an increase in the Bank Rate by 0.5 percentage points, to 4%.

Then, in May, another meeting on the 10th of May 2023, the Monetary Policy Committee (MPC) voted by a majority of 7–2 to increase Bank Rate by 0.25 percentage points, to 4.5%.

Base rates didn’t stop increasing here, in August, rates rose again to 5.25% where it has remained all the way into February 2024.

These consecutive increases from the Bank of England (BoE) were decided in a context of high inflation. The main goal of these increases was to limit the negative effects of inflation on the British economy and thus limit the potential disastrous impacts of the conflict in Ukraine and energy crisis.

the bank of england in the uk

An increase in inflation

Despite base rates being above average for over two years, inflation continues to rise, keeping Bank of England rates high. The latest data shows inflation ticked up to 4.0% in December 2023, down from 4.6% in October but still elevated. The office for National Statistics shows this here.

A shortage of properties

London’s housing market, already strained, will come under immense pressure from the swelling population. With restricted housing supply, demand will persist in rising, propelling house prices and rents upward. The high cost of living in London is now proving even less affordable for lower-income households and individuals, as housing expenses climb.

Were the targets for property developments met? 

To tackle the housing deficit, London’s government has set a goal of constructing 66,000 new homes annually. But with land scarcity, mounting building costs, and lack of political backing to develop greenfield sites, achieving this target looks doubtful. The ongoing housing shortage will only further inflate housing costs and make affordable options even more scarce.

annual change in rent

Population increase in London

According to recent data, the metro area population of London has been steadily increasing year over year. In 2024, the population reached 9,748,000, representing a 1.04% increase from 2023. The prior year, 2023, saw the population hit 9,648,000, up 1.12% from 2022. 

Going back further, London’s population grew 1.22% from 2021 to 2022, reaching 9,541,000, while the 2021 population of 9,426,000 marked a 1.31% increase over 2020. Given London’s limited housing supply and high demand for housing, this consistent population growth has likely contributed to rising prices for both home buyers and renters in London. 

With more people competing for a restricted amount of available housing, basic supply and demand dynamics put upward pressure on prices. 

What will shape rental trends in 2024?

Rental trends in 2024 will be shaped by several key factors including: interest rates, property prices, proposed renters reform, struggles facing smaller landlords, and the upcoming general election.

What factors come into play this year?

With interest rates and house prices helping determine landlord costs, proposed pro-renter policies potentially impacting profitability, smaller landlords facing challenges, and the election introducing uncertainty, a complex mix of forces will influence the rental market this year.

With inflation now below average wage growth, consumer morale stays weak and surveyors continue reporting subdued new buyer inquiries. Also, while markets expect the next Bank Rate move to be down, risks of further rate hikes persist. 

rental trends in 2024

Interest rates

While the European Central Bank (ECB) left interest rates unchanged at its January 2024 meeting after aggressively hiking rates in 2022-2023, the Bank of England also kept rates steady for the fourth straight meeting in February 2024 after a series of increases. However, there is an important difference – two BoE policymakers voted for a rate hike here while one voted for a cut, suggesting there is now more debate around potentially reducing rates. 

With Eurozone inflation slowing, markets expect the ECB to start cutting rates later in 2024. The BoE results indicate the UK may follow the ECB’s lead in shifting to an easing cycle, as some policymakers already favour lowering rates while inflationary pressures ease. 

If Eurozone and UK data continue improving, both central banks could turn dovish and start unwinding recent hikes. The BoE vote hints that UK rates have likely peaked and could trend down alongside the ECB later this year.

Data on property price

After over two years of surging rental growth, there are early signs that London’s overheated rental market could finally be cooling. While average asking rents rose 12.1% year-over-year in Q3 2023, growth has slowed from previous quarters. Rightmove did this research, read more using this link.

More rental listings are appearing while tenant demand softens, pointing to a better supplied, less competitive market. Though still elevated, rental increases may continue moderating into 2024 as affordability limits kick in. 
While the chronic housing shortage persists, peak rental inflation appears to have passed.

Assuming broader economic conditions remain stable, London rents could see steady yet slower growth in 2024 after an exceptionally heated couple years. Read more about this using the government’s housing market report.

a man assessing rental trends

Renters reform

The Renters Reform Bill, introduced in May 2023, aims to provide more security for tenants by abolishing ‘no fault’ evictions in England. Currently, landlords can evict tenants through a Section 21 notice without having to give a reason. 

The bill would replace this with open-ended tenancies that could only be ended for specific grounds. It also establishes an ombudsman for disputes and requires landlords to consider reasonable requests from tenants to have pets. While landlord groups have expressed concerns, tenant advocates welcome the increased protections. 

In terms of rental prices, the changes could put some upward pressure on rents in the near-term as landlords adjust their business models.

However, over time, improved tenant rights and more secure occupancy may improve rental affordability by encouraging longer tenancies and discouraging frequent rent hikes above market levels.

The overall impact remains uncertain but the bill marks an important step toward rebalancing power in the rental market.

Smaller landlords may struggle

Smaller landlords with just one or two rental properties may find it increasingly difficult to profitably provide housing as costs rise faster than rents. Factors like higher interest rates, rising maintenance and repair costs, and stricter regulations are squeezing margins. 

Additionally, some smaller landlords lack the scale and professional expertise to effectively manage risks. With the Renters Reform Bill limiting grounds for eviction, landlords have less flexibility to remove tenants not paying rent or damaging their property. 

Meanwhile, a stagnant housing market provides fewer profitable exit opportunities. Facing lower returns and increased hassle, some smaller landlords may choose to leave the market. 

While larger professional landlords are better positioned to adapt, the shrinking pool of small landlords could reduce overall rental housing supply. Unless counteracted through policies to assist smaller providers, these trends may make affordable rental housing even harder to find.

A property in the uk in a field

The general election

The next UK general election, which must happen by January 2025, has the potential to influence rental market trends, including pricing. If Labour were to win, they may push for stronger tenant protections like limits on rent increases in certain areas, which could restrain price growth in the short-term. 

However, they may also reduce incentives for landlords, potentially decreasing supply and putting upward pressure on rents longer-term. The Conservatives would likely maintain a more landlord-friendly stance, but uncertainty around proposed reforms like abolishing Section 21 evictions could still discourage investment. 

Past elections suggest changes in government can lead landlords to adjust behaviour in ways impacting supply and demand – key factors driving rental rates. While the outcome is unknown, the election could prove a significant inflection point in the trajectory of UK rental prices.

Labours promised changed to the property market

The Labour party has outlined a series of reforms for the UK’s private rented sector, including the abolition of Section 21 “no fault” evictions, the introduction of a legally-binding Decent Homes Standard, and a commitment to increase the housing supply with a focus on affordable homes. 

Additionally, they propose a comprehensive renters’ charter that would extend notice periods, protect tenants from automatic evictions for rent arrears, allow pets and reasonable property alterations, and improve the portability of tenancy deposits. 

Labour also aims to upgrade all homes to EPC standard C within a decade as part of their green energy initiatives. These changes are contingent on Labour’s success in the forthcoming General Election and subsequent legislative action. Read their full manifesto here

Will rents fall or rise if the conservatives stay in power?

The Conservatives hope to maintain property as a safe investment, with possible inheritance tax cuts as an election incentive, while Labour’s position could allow the Conservatives to use housing policy as a key issue in the next election.

Rishi Sunak making property laws

Liberal democrats proposed changes to UK property

The Liberal Democrats aim to tackle the housing crisis with a plan to build 150,000 social homes per year, enhance local authority powers to construct affordable housing, and implement a ten-year initiative to insulate homes and ensure new builds are zero-carbon. 

They advocate for abolishing leaseholds, introducing fairer rental terms with longer tenancies and a ban on no-fault evictions, and granting local governments more control over second homes. 

Additionally, they propose building 10 new garden cities and reforming planning laws to encourage community involvement and fair land acquisition. These efforts from the liberal democrats are designed to provide equitable housing solutions and align with environmental goals.

Are the trends the same in the rest of the UK?

Rental trends across the UK show significant regional variation beyond major cities like London. Some cities offer higher yields, while select areas see rents decreasing. With variable conditions, understanding local rental markets is key for landlords seeking to maximise returns. 

Proper tenant referencing also remains important as rents rise in many places. Landlords nationwide must adapt to rapidly changing local rental markets in 2023. Examining rental trends by city provides insights on the best opportunities.

new developments in the uk and london

Best cities for higher rental yields

In the UK property market, rental yields have shown resilience from 2022 to 2024, recovering to pre-COVID levels with a slight upward trend. By 2021 to 2022, unincorporated landlords declared £48.87 billion in rental income, with London landlords accounting for a significant 26% of this figure. 

The average rental income per landlord has remained relatively stable, suggesting a consistent return on investment. Looking forward to 2024, the trend indicates a potential for steady growth in rental yields, particularly in high-demand areas like London. 

Property investors are likely to continue seeking properties in regions with robust rental markets, where the promise of higher yields and capital appreciation remains strong.

How to make sure tenants are referenced correctly as rents rise?

Here are some tips for landlords on properly referencing tenants as rents rise:

  • Require a UK-based guarantor for tenants without a strong credit history. Make sure to verify the guarantor’s income and creditworthiness.

  • Thoroughly check references from previous landlords – follow up with calls not just emails. Ask specific questions about rent payment history and property care.

  • Review bank statements to confirm regular income. Look for consistency month-to-month rather than relying on a single recent payslip.

  • Use a detailed rental application that asks for employment history, current employer details, income sources, credit history and more. Follow up on any gaps or inconsistencies.

  • Check the tenant’s credit report to identify any missed payments, defaults, CCJs or other red flags. Require credit scores above a minimum threshold.

  • Search the tenant’s name online to uncover any potential issues from news reports or social media.

  • Trust your gut. If something seems off about an application, it’s better to walk away than risk a problem tenancy.

With rents rising across the UK, taking time to thoroughly vet tenants is crucial protection. Following best practices for tenant referencing helps minimise the risk of rent arrears or property damage down the road.

Best cities for higher rental income

Rental yields are important to gauge how profitable the rental income is in relation to the value of a property

Area Gross rental yield
City of Nottingham 6.49%
Boston District 6.01%
Mansfield District 6.00%
Fenland District 5.60%
City of Peterborough 5.49%
Great Yarmouth District 4.56%
Barking and Dagenham 5.12%
Newham 4.87
Bexley 4.80%
Hartlepool 7.64%
Middlesbrough 7.61%
Sunderland 7.61%
Burnley 7.92%
Liverpool 7.02%
Hyndburn 6.98%
City of Portsmouth 5.60%
Gosport District 5.54%
City of Southampton 5.54%
City of Plymouth 5.64%
Gloucester District 5.45%
Swindon 5.40%
Blaenau Gwent 7.02%
Merthyr Tudful 6.54%
Rhondda Cynon Taf 6.44%
City of Stoke-on-Trent 6.63%
Coventry District 6.04%
Newcastle-under-Lyme district 5.98%
North East Lincolnshire 6.72%
Barnsley District 6.45%
City of Kingston upon Hull 6.42%

Should you focus more on rental yield or rental income?

Rental income will usually be based on the rental demand rather than the properties valuation.

Are rents dropping anywhere in the UK?

Amidst the UK’s economic struggles, investing in the UK in general has become a lot harder. First of all, rent prices have soared, particularly in London, where no single room falls below £700, and central areas often exceed £900. The surge in mortgage rates has prompted landlords to sell, tightening the rental market and pushing rents up. 

Despite a slight dip in inflation and stable interest rates as of September 2023, there’s little indication that rents will decrease soon. f

The underlying issue is the chronic housing shortage, with a deficit of 4.3 million homes. Without significant planning reforms to boost housebuilding, which currently lags at a pace that would take 50 years to meet the backlog, rents are likely to remain high. 

The Centre for Cities suggests that only a substantial increase in housing supply can offer relief to renters, but this could come at the cost of prospective homeowners. In short, for UK rents to drop, a major shift in housing policy and construction rates is essential.

What landlords should look out for in 2024

In 2024, landlords should be alert to the Renters’ Reform Bill impacting property compliance, guard against heightened fraud rates alongside rising rents, and expect fewer delayed payments due to tenants prioritising rent amidst higher charges. It’s a year for vigilance and adaptation in the UK rental market.

a house hanging on a wall in london

Property compliance due to renters reform

The Renters’ Reform Bill is poised to significantly alter property compliance, impacting rental trends across the UK. Landlords, including those catering to the student market, will need to adapt to the absence of Section 21 notices and the introduction of new grounds for repossession, such as ‘antisocial’ behaviour. 

This shift aims to balance the power between landlords and tenants but may require landlords to rely more on local authorities and police to prove grounds for eviction. Edwin Coe LLP Law Firm highlights the potential for disruption, particularly for student lets, as the Bill does not currently exempt them, potentially affecting the traditional academic year letting cycle. 

Amendments are being considered to address these concerns, including defining student tenancies and allowing for specific possession grounds. As the Bill evolves, its impact on rental trends will depend on how these changes are implemented and whether they can address the housing shortage without disadvantaging either landlords or tenants.

High fraud rate due to a rise in rents

When rents climb, the desperation to secure affordable housing can intensify. Prospective tenants, in their urgency, may become less cautious, overlooking standard verification processes or failing to scrutinise rental agreements thoroughly. 

This creates a fertile ground for fraudsters who prey on the urgency and vulnerability of house hunters. They may advertise non-existent properties, demand upfront fees for viewings that will never occur, or insist on deposits for properties they do not manage or own.

For landlords, the higher rents can attract a pool of applicants, among whom may be individuals using forged documents to pass credit and reference checks. The allure of a high-rent property can also tempt unscrupulous individuals to sublet rooms illegally, leading to overcrowding and potential breaches of safety regulations.

A man in the uk who is trying to find the right place to invest in property

The rise in rents, therefore, not only strains the wallets of tenants but also increases the risk of fraudulent activities within the rental market. It’s a dual-edged sword that requires heightened vigilance from all parties involved in the rental process. 

Landlords must be meticulous in their vetting procedures, and tenants should remain sceptical of deals that seem too good to be true, always verifying the legitimacy of the property and the person renting it out.

A decrease in delayed rent due to higher rents

In the UK’s current economic climate, the escalation of rental prices is having an unexpected side effect: a decrease in delayed rent payments. As rents rise, tenants are prioritising their housing expenses, acutely aware that the competitive market could leave them with limited alternatives should they fall behind and face eviction. 

This heightened sense of urgency to maintain a roof over their heads has led to more timely rent payments. Landlords are reporting fewer instances of arrears, as tenants are more likely to budget carefully and ensure that rent is paid promptly to secure their tenancy. This trend reflects a shift in financial priorities, with housing c

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