Strong rental growth has eaten into tenant budgets and will lose a bedroom if they pay the same rent they did in 2020, according to Hamptons.
The average two-bed, at £1,068 per calendar month, now costs what the average three-bed cost just 16 months ago, says the estate agent’s July Monthly Lettings Index. While the average one-bed, at £929pcm, now costs what the average two-bed cost 24 months ago.
Previously, it took just over six years, or 74 months, for average rents to rise by an amount equivalent to the cost of a bedroom.
The two years between July 2020 and July 2022 marked the largest erosion of tenants’ buying power over any period since Hamptons launched its lettings index in 2013, with average rents rising 16.2%, or £165 a month.
“Strong rental growth has meant that tenants’ budgets don’t stretch as far as they used to,” the study says. “This means that tenants are having to trade down and lose a bedroom in order to spend the same amount of money on rent as they did in 2020.”
During this period tenants in the South West saw their spending power fall the fastest in the country, with average rents rising by 18.7% or £169pcm, which saw the value of the money eroded by the equivalent of a bedroom over just 16 months.
Wales saw the slowest increases, with average rents rising by 14.3%, which saw the value of the money eroded by the equivalent of a bedroom over 30 months.
Currently, the report says UK rents rose by an average of 8.3% over the year to July, marking a gradual slowdown from late spring when rental growth peaked at 11.5%.
It adds that rents are 15.7% above where they were when the pandemic struck. But despite the rate of growth slowing for the third month in a row, July’s figure still marks the sixth strongest annual increase recorded during the last decade.
The study says that current growth has been driven by a recovery in rents for smaller urban homes. One-beds rose by an average of 10.4% year-on-year, while four-beds lifted by 6.6% over the same period.
It adds: “This reflects city rents playing catch up following Covid. The average one-bed now costs 13.6% more than pre-Covid times compared to four-beds that are 17.6% above pre-Covid levels.”
Inner London saw rents jump by 33.6% compared to a year ago, the fastest rise in the country.
The index says: “This rapid rate of growth reflects the post-Covid trough it’s being compared against. This will work its way through in a couple of months, likely bringing down the year-on-year figure significantly. As such, it leaves average rents only 1.5% above where they were in January 2020 and still on par with July 2016.”
The number of homes available to rent continues to slide, falling by 9% in July compared to a year ago and 52% fewer properties than two years ago.
London posted the sharpest fall in stock anywhere in the country, down 37% year on year.
The report says that stock levels are now so low that July saw more homes come onto the market than there were homes still on the market from previous months, the first time this has happened since 2012.
Hamptons head of research Aneisha Beveridge says: “After two years of record rental growth, tenants aren’t seeing their budgets stretch as far as they used to. And they are likely to be squeezed further still by a mix of investors leaving the market and the landlords left behind looking to pass on their higher mortgage costs.
“Tenants trying to move are increasingly facing a cost cliff with market rents rising faster than what they’ve been paying for their current homes.
“There are some signs that the rental stock slump is close to bottoming out. But with two-thirds fewer homes on the market than five years ago, there isn’t room for them to fall much further.
“In a reversal of last year, it’s city centre markets which have seen the biggest year-on-year falls in the number of homes up for rent, meaning it’s here that tenants are still facing double-digit rental growth.
“Meanwhile, suburban and country markets have quietly recorded small rises in stock levels and have seen rental growth soften.”
