Why has renting got so expensive?

David Stone

by , Content Manager

at PensionBee

07 Dec 2023 /  

Dec 2023

Calendar with rent payment date underlined

According to the latest figures from the Office for National Statistics, five million people are privately renting their home whilst a further 4.2 million are renting in the social sector. That adds up to 9.2 million people living in rental accommodation in the UK. With rents rising at the fastest rate on record, many of us will be feeling the squeeze.

What’s causing rental prices to rise?

The cost of living

From our energy bills to food shops, the cost of living crisis has seen price increases in many sectors. The crisis itself is the result of many global factors including the aftermath of the COVID-19 pandemic and Russia’s invasion of Ukraine. These influences can cause the things we rely on everyday to become more expensive. The rate at which prices rise is known as inflation. UK inflation rose to a record 11.5% in October 2022 and has remained high throughout 2023, sitting at 4.6% in October 2023.

Director (VP) Public Affairs at PensionBee; Becky O’Connor says: “It’s pretty normal now for people to be spending half of their take-home pay on rent.”

If an individual or business is having to spend more money day-to-day, then it may lead them to consider also raising the price of any service they provide. Property is a source of income for many people, so landlords may decide to increase rents to help pay their own rising costs.

In the year to September 2023, the average increase in rent across the country was 11.7%, 5% higher than the rate of inflation at the time. So, although inflation may have been one of the reasons that rental prices rose, it would seem that there were other factors at play.

Increased mortgage rates

In response to rising inflation, the Bank of England has been raising interest rates throughout 2022 and 2023. They remain at a record high of 5.25% as of November 2023. The idea behind this is to discourage people from spending, so that service providers are forced to drop their prices, therefore lowering inflation.

Deputy Property Editor at The Times; David Byers says: “Landlords have had these huge mortgage rises and they’re passing those rents on to tenants. This shortage of stock added to that means you’ve got this big increase in rents, particularly in urban areas.”

A higher interest rate means increased costs for high street banks who provide loans to the general public, including mortgages. This means that these costs can get passed on again to anyone who has a mortgage, increasing the rate of interest they have to pay.

The average two-year fixed rate mortgage peaked in July this year at 6.86%. With many landlords struggling to cope with their mortgage increases, the costs are once again being passed down, this time to their tenants.

Supply and demand

Rather than having to deal with higher mortgage repayments, some landlords have decided to sell off their rental properties. This has led to fewer properties being available to let.

The prospect of having to pay more in interest to own a home has also deterred many from buying a property to live in themselves. This means a lot of people who would have been potential buyers are, for now at least, staying in the rental market. On top of this, more and more students are renting while they study, with many having stayed at their parent’s homes during the COVID-19 pandemic.

These factors combined have led to the perfect storm of more people looking to rent with fewer properties available. Property portal; Rightmove says there are now an average of 25 enquiries per home on the rental market, up from just eight in 2019. With more competition for each property, it can lead to some of us having to pay more than we would normally, to outbid other prospective tenants.

What does the future look like?

A worrying issue that can arise from rental prices going up is an increase in homelessness. Most people will think of being homeless as living on the streets, and those numbers are indeed high with around 3,000 people sleeping rough in the UK. However, a large number of homeless people are what’s known as ‘hidden homeless‘. This includes people who are ‘sofa surfing’ for short periods, staying temporarily with family or friends, and those living in temporary accommodation.

Deputy Policy Officer at Shelter; Jenny Lamb says: “There may even be people who are homeless who don’t really consider themselves to be. Some people staying with friends who are thinking, ‘this is a temporary arrangement while I get on my feet. I’ll sort something out’. But those people are technically homeless.”

There’s hope on the horizon if the government’s Renters (Reform) Bill comes into law. Amongst the suggested measures is the abolishment of ‘Section 21 notices’. Currently landlords are allowed to serve you a Section 21 notice to leave a property once a fixed-term tenancy contract ends or at least four months after the start of a periodic tenancy. One of the most controversial parts of these notices is that landlords don’t need to have a reason to evict you using one.

The idea behind the Renters (Reform) Bill is to make the rental system fairer for both landlords and tenants. It also includes the introduction of an independent Ombudsman for private rentals, the right to request a pet in a property and changes to rules around repossession along with other measures. The bill was recently debated in parliament, but some changes are unlikely to take place until at least late 2024, with the removal of Section 21 notices delayed indefinitely until the court system is reformed.

Listen to our episode all about renting on our podcast

Hear us discuss the cost of renting further on The Pension Confident Podcast. In this episode we explore the reasons behind recent price increases, what your rights are as a tenant or a landlord, and what needs to change to improve the housing market. You can listen to episode 22, watch on YouTube, or read the transcript.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

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