Which UK regions are enjoying the highest rental growth in 10 years? We find out!
New research has revealed that rental growth hit a decade-high in March in four UK regions; the North East, South West, East Midlands and Wales.
The latest Zoopla Quarterly Index has found that rents are rising fastest in the North East of England with a year-on-year increase of +5.5 per cent. The South West generated the second-highest rental growth of 5.3 per cent while the East Midlands was next highest at 4.8 per cent. Although not a 10-year high for Northern Ireland, the region registered the fourth highest rental growth rate for the quarter of 4.4 per cent while Wales completed the top five highest performers with a year-on-year rental growth of 3.8 per cent.
Narrowing the data down to focus on the towns and cities, Hastings in Kent saw the highest rental growth at +8. per cent. However, the average rents in the town are relatively lower than the neighbouring towns of Bexhill and Eastbourne, signalling how rents are rising more quickly in this more affordable area than elsewhere on that stretch of the south coast.
Unsurprisingly the North East – the rental growth regional top performer – is one of the most affordable rental markets in the UK with average rents of only £559pcm versus £923pcm across the whole of the UK… so it had some headroom to grow. Rents in the region accounted for a fifth (20.8%) of average income for a single earner in the North East before the pandemic, compared to the UK average of 32 per cent. The growth in rents over the last year has pushed this measure of affordability to 22 per cent, but North East still remains one of the most affordable regions in which to rent a property.
According to Zoopla’s figures, the next most affordable region is Scotland with average rents of £621pcm accounting for 23.2 per cent of a single earner’s income. Scotland is closely followed by the North West with average rents of £639pcm, which is 23.3 per cent of a single earner’s income.
UK rental growth outside London hits 4-year high
Average rents across the UK outside of London rose by 1 per cent in the three months to the end of March, taking annual rental growth to +3 per cent. This is an increase from the +2.1 per cent growth at the end of Q4 2020 and marks the highest level of rental growth in four and half years. Zoopla attributes this performance to the elevated levels of rental demand as we all come out of lockdown.
Imbalance in Demand Inside and Outside of London
Rental demand was 59 per cent higher in April than in a typical April, like the more ‘normal’ markets between 2017 and 2019. In the first quarter of this year, demand for rental property outside London was 32 per cent higher than in the same period last year.
Zoopla’s analysis attributes the main reasons for this imbalance in supply and demand of rental properties to a number of factors:
- A lot of tenants are wanting to move at the same time
- Investment in the private rental market has not recovered since the +3 per cent stamp duty was introduced in 2015 so there are fewer properties on the market
- This lack of new investment is also clear from the drop in properties being purchased with a buy-to-let mortgage
Rental Growth in London Falls -9.4 Per Cent
In London, average rents have fallen nearly 10 per cent since the start of the first lockdown last year, and Zoopla analysts do not expect the market to rebound back to rental levels seen at the start of 2020. Instead, they expect to see a slow build over the coming 12-18 months, especially in central London zones.
London Rents at Their Most Affordable in a Decade
Across London as a whole, rents are at their most affordable levels in a decade, with the average monthly rent accounting for around 42 per cent of a single earner’s average gross income, down from 49 per cent last year.
The experts at Zoopla predict that current elevated levels of demand in the wider UK market, amid constrained supply, will continue to underpin rental growth this year.
At the same time, the opening up of the economy and the slow return to ‘business as usual’ as the vaccine rolls out will mean that demand will continue to build over the summer as more people move to rent their first property through 2021. This activity is obviously subject to the lockdown restrictions being fully eased, which at the current moment in time remains uncertain.
In London, the rental growth decline has started to reverse and this upward trend is expected to continue at a slow pace. City centre rents are also expected to recover as offices start to re-open and tenants discover city rents are more affordable than previously.
Gráinne Gilmore Head of Research, Zoopla, commented: “Elevated levels of demand amid constrained supply will underpin rental growth in 2021 across the UK. In large city centre markets, rental demand is building as offices start to re-open, which will ease negative pressure on rents.”