Annual rental growth reached the highest level for 13 years at 4.6% in the third quarter, according to the latest index from Zoopla.
Across the UK, rents hit an average of £968 in the three months to the end of September as demand from tenants outstripped the supply of available properties.
When London is excluded, average rental growth across the rest of the UK was 6%, with demand doubling in central Leeds, Manchester and Edinburgh and London from Q1 to Q3.
Rental growth at or near a 10-year high across most UK regions – except for in London and Scotland.
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London’s rents have returned to positive territory after falling for 15 consecutive months, with an increase of 4.7% between June and September as offices reopened and workers returned to the city.
However, London rents are still 5% lower than they were at the start of the pandemic.
Zoopla forecasts that the undersupply of rental properties across the country and the strength of the employment market will support rental growth into 2022.
It expects that across the UK, but excluding London, rents will rise by 4.5% by the end of next year.
Meanwhile, London rental growth is expected to pick up to 3.5%, with rents ultimately exceeding pre-pandemic levels.
Zoopla says that the shortage of rental properties has been compounded by both long-term structural issues such as landlords leaving the market following tax changes as well as short-term issues with a surge in demand when lockdown ended.
Rental growth is also explained in part by tenant demand moving up the price bands in the so-called “race for space”, which has not been restricted to the sales market.
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UK monthly rents now account for 37% of an average income for a single tenant occupant.
However, even with strong rental growth, affordability remains in line with the five-year average.
The regions registering the highest levels of rental growth are among those that are the most affordable when compared to the UK average, which has allowed more headroom for increases.
The South West saw the biggest annual increases at 9%, followed by Wales at 7.7% and the East Midlands at 6.9%.
In many of the UK’s largest cities, annual rental growth is running well ahead of the five-year average rate of growth.
Bristol leads with 8.4% growth, followed by Nottingham at 8.3%, and Glasgow at 7.2%.
Zoopla head of research Gráinne Gilmore says: “The swing back of demand into city centres, including London, has underpinned another rise in rents in Q3, especially as the supply of rental property remains tight.
“Households looking for the flexibility of rental accomodation, especially students and city workers, are back in the market after consecutive lockdowns affected demand levels in major cities.
“Meanwhile, just as in the sales market, there is still a cohort of renters looking for properties offering more space, or a more rural or coastal location.”
By Leah Milner
Source: Mortgage Finance Gazette
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