Thursday September 14, 2023



The United Kingdom’s rental market is experiencing a prolonged period of rising rents and an ongoing supply-demand mismatch. This article offers an in-depth analysis of key takeaways from the current rental market report and explores the historical context of renting in London.

Double-Digit Rental Inflation Persists

Over the past year, rents for new lets have surged by 10.5%, although they stood at an even higher 12.2% just a year ago. This marks an astonishing 18 months of double-digit rental inflation, translating into an average cost increase of £110 per month, or £1,320 annually, for renters. In the last three years alone, renters have confronted an average cumulative rise of £2,772, intensifying the burden of living costs.

Supply-Demand Mismatch Persists

The UK rental sector remains ensnared in a relentless cycle of low supply and high demand. Despite a 20% reduction in demand for rented homes compared to the previous year, demand still outpaces the five-year average by 51%. Conversely, the supply of rental homes has increased by 20% year-on-year but continues to fall short by 30% when compared to the typical supply for this time of year.

This perpetual supply-demand imbalance is not unique to London alone but is a recurring theme across various regions and countries within the UK.

Historical Context: The Evolution of Renting in London

Understanding the current state of the rental market in the UK requires acknowledging the historical significance of London. London has long been at the epicenter of the country’s rental landscape. Over the decades, it has witnessed various shifts, from periods of affordability to remarkable spikes in rental costs.

During the post-war era, London rentals were generally characterized by relative affordability. However, as London grew into a global financial hub, demand for housing surged. The late 20th century saw rental costs escalating, driven by a booming economy and increased migration to the city.

The early 21st century witnessed another pivotal moment as the 2008 financial crisis led to a temporary downturn in rental prices. However, this was followed by a rapid resurgence, especially in the inner London areas, fueled by international investments and a burgeoning tech industry.

Factors Driving Rental Demand

Several factors continue to drive rental demand, both in London and nationwide. A resilient labor market, job creation, and record levels of immigration significantly contribute to the sustained demand for rental properties. Moreover, higher mortgage rates have elevated the cost of buying homes, encouraging more individuals to choose renting as a viable alternative.

Rental Growth Shifts to More Affordable Areas

Rental growth at a city level varies, with rates running from 6% per annum in Brighton and Exeter to 15.6% in Edinburgh and 14% in Manchester. Several cities are registering slower annual growth than a year ago, while others are tracking at a similar rate of growth. The biggest slowdown has been registered in inner London. In this area, rents are slowing from a high base, having sharply rebounded following the pandemic.

There is a clear trend emerging in London, with the impetus for rental growth coming from the outer London suburbs as renters seek better value for money. We expect rental growth in inner London to slow further in H2. This is due to expanding supply on the back of new build sales to corporate investors and affordability pressures impacting demand.

Rental Affordability Deteriorates Further

While the pace of UK earnings growth has been accelerating, the growth in rents for new lets continues to be higher, worsening rental affordability. Over the last decade, the average rent as a percentage of gross earnings has tracked in a narrow range between 25% and 28%, averaging 27.2%. Double-digit rental growth means rental affordability is now at its worst for over a decade at 28.4%.


Rental growth is on track to end the year at over 9%, higher than earnings growth, which is expected to be 6%. Rental growth is higher than anticipated due to faster earnings growth and the impact of higher mortgage rates keeping more people renting.

Rents for new lettings are expected to keep rising ahead of earnings growth in 2024, projected to be 3.6%, in the face of ongoing supply constraints and sustained higher mortgage rates. We currently anticipate UK rental growth of 5-6% in 2024 with the impetus for growth originating from regional cities. We believe rental inflation in inner London will slow more quickly in the next year in the face of higher rents and affordability constraints. This would act as a drag on the UK rate of growth, potentially halving it to more sustainable levels.

Renting in London: Record High Rents and Challenges

The London rental market has been grappling with steep price increases, with average rents reaching a record £2,210 per month in April. Figures from estate agents Hamptons reveal a 1.5% growth in the cost of a new let in the capital last month, amounting to an annual hike of 17.2%.

For tenants in inner London, the rise has been steeper, with typical rents soaring by almost a quarter over the past 12 months to a staggering £3,138 a month in April. This means tenants typically need to find £7,500 a year more to secure a property in the heart of the capital than they did last spring.

Outer London rents are also at a record high, with an average home costing £2,035 a month in April. London’s rental market has been described as the “wild west” by tenant bodies as prices soar, competition increases, and conditions in some cases become desperate.

The impact of the pandemic has played a significant role in these trends. The market in the capital is readjusting after the pandemic drove people away in search of more spacious living, and it’s now returning to face price hikes.


In conclusion, the UK’s rental market continues to evolve, driven by a complex interplay of factors. London’s historical significance in the rental landscape provides valuable context, while the ongoing supply-demand imbalance and affordability challenges shape the rental market’s trajectory. The future outlook suggests rental growth is set to continue, albeit with potential variations across regions and cities.