Rent in the UK: How have prices increased?

While rent has increased it could still be more affordable than homeownership.

Private rental prices in the UK rose by 4.9% in the 12 months to March 2023, according to the Office for National Statistics (ONS). In comparison, in the 12 months to February rental prices increased by 4.8%.

The ONS is not the only researcher to report an increase in rental costs. Propertymark, a membership organisation for estate agents, also registered a rise in rent for UK homes and an issue of undersupply in the market.

“In the lettings sector, the issue of undersupply remains with no movement seen in the number of properties available to rent,” said Nathan Emerson, CEO of Propertymark.

He then explained that on average every property available to let attracts 10 prospective tenants.

A rise in rental costs was also recorded by real estate companies Zoopla and Rightmove, albeit at a higher rate than the ONS.

Its data is only available for the 12 months leading to January, in which Zoopla recorded an 11.1% rise in rental prices while Rightmove noted a 9.7% increase. By contrast, the ONS said rental prices increased by 4.4% in the 12 months to January.

Zoopla also highlighted the issue of undersupply in the rental market and said that higher mortgage rates have played a role in deterring potential landlords from making a buy-to-let investment.

“The equity needed to buy new rented homes with a mortgage has been increasing in recent years as a result of rising house prices, lower rental yields and tighter lending criteria,” said Richard Donnell, Executive Director at Zoopla.

He then explained that this has been exacerbated over the past six months due to rising mortgage rates.

According to the Royal Institution of Chartered Surveyors (RICS), a real estate body, rents are expected to rise higher this year. It said it is expecting a 4% growth in prices due to imbalance of supply and demand.

Zoopla also expects rental prices to grow by roughly the same figures, down from the 11.1% it recorded across 2022.

It also noted that it expects demand to cool when compared to last year due to weakening economic conditions. However, it said it expects it to remain above the five-year average.

According to Rightmove, on average rent in the UK costs £1,172 per calendar month. This figure excludes London, where it sits at £2,480 per month.

How this compares to homeownership depends on your own individual circumstances, such as how much you can put together as a deposit and the type of home you’re looking to buy.

So, based on the ONS’s average house price of £288,000, we’ve calculated how this figure compares to several scenarios.

It is important to remember that homeownership comes with additional costs.

Landlords are liable for repair work or maintenance costs in a rented home, but as a homeowner you’ll have to foot the bill for potential repairs. In addition, you’ll need to set aside money for home insurance once you get onto the property ladder.  

Although you won’t need to pay Stamp Duty in these examples, it is important to consider how your deposit will affect your finances.

According to the ONS, the average salary for a full-time employee sits at £640 a week, or £33,280 a year. This means a £28,800 deposit on the average home comes to nearly 87% of these yearly earnings. 

Plus, if your mortgage comes with fees, such as for valuation charges and conveyancing costs, this can become even more expensive.

So, if you’re looking to avoid rising renting costs by owning your first home you’ll need to put your finances under the spotlight. Even with an increase in rental prices it may be cost-effective to stay in your current lodging.