Recent headlines have been proclaiming that rent growth is down by half, but to many, the wording of that is a little confusing and it’s not really clear what that means. So, let us explain exactly what that headline means for the UK rental market.
A recent survey from Deposit Protection Service (DPS) shows that in the fourth quarter – or final three months – of 2017, the average monthly rent paid across the UK was £773.74. That was 1.63% higher than the average rent paid in the fourth quarter of 2016, when it was £761.31.
Where does the fall come into it?
When stories talk about a fall in growth, what they mean is the rate at which average rents are rising, has slowed. Or, to put it into numbers:
- In Q4 2017 the average rent paid in the UK was 1.63% higher than Q4 2016.
- In Q4 2016 the average rent paid in the UK was 3.25% higher than Q4 2015.
So, while rents have risen in both 2017 and 2016, they rose more quickly in 2016 than in 2017. In fact, the 1.63% rise in 2017, was around half – or 50% - of the average 2016 rent rise increase.
This doesn’t mean that rents have fallen, but, that they are rising more slowly compared with the previous period.
“Rent growth was slower in 2017 than 2016 when compared to inflation and wages, suggesting that general economic uncertainty is affecting the private rental sector particularly,” said Julian Foster, Managing Director of the DPS.
Mr. Foster goes on to say that the slowdown noted in the DPS rental index began around mid-way through 2016 “and is likely to be linked to the EU referendum result.”
Will UK rents fall?
That’s a tricky question and one that people aren’t really willing to give a straightforward answer to. The reason is because the UK’s private rental market is affected by numerous things. They include:
- Wage growth.
- Employment opportunities.
- Population growth.
- Government tax changes.
- Interest rates.
- Landlord investment plans.
Any one of those details can have a small impact, but they don’t always move in the same way.
Right now, interest rates are low, making it a good time for Buy-to-Let investors to buy rental properties. But, government tax changes have made it a less financially beneficial decision, in some cases.
Likewise, Brexit has seen some businesses stop investing which could lead to slower jobs growth which tends to encourage people to stay put and not make a move or major investment. But, if the population keeps growing at expected rates, then existing housing levels and planned construction numbers aren’t enough to satisfy the current need and so demand will likely remain buoyant and allow landlords in some areas to raise rents.
As you can see, the various driving forces behind UK rents really can move in opposite directions, giving an end result that means rents don’t move as much in one way as you might expect.
What is clear right now, though, is that there’s a lot going on and much uncertainty and all this after a period where rents have been rising sharply for some time. It’s likely that the current uncertainty will remain for a while – at least until Brexit is clearer and more homes have actually been built – and that rents will rise by only a little, in the coming months.