UK Rental Market Insights Q3 2024: Record Rents, Market Pressures, and the North West Perspective

Record-High Rents: A Slower but Ongoing Increase

Rental prices across the UK reached new heights in Q3 2024. Outside of London, the average advertised rent stands at £1,344 per month—a 5.2% increase from last year, continuing the upward trend for the 19th consecutive quarter. While still high, this growth rate is the slowest since 2021, indicating a slight tempering of the rental market compared to the intense spikes in recent years.

In London, rental prices also hit a new record, with the average rent now at £2,694 per month, marking a 2.5% year-on-year rise. These figures show the ongoing pressure on renters to meet rising costs, even as the rate of increase stabilises.

Spotlight on the North West Rental Market

The North West of England has experienced notable rental growth, aligning with the broader national trend but showcasing unique regional dynamics. For example, in the past year, towns and cities like Birkenhead and Bradford have seen rental prices rise by 16.1% and 19.8%, respectively. Average rents in Birkenhead are now around £737 per month, reflecting significant demand in this area and highlighting opportunities and challenges for renters and landlords alike.

For estate agents such as Farrell Heyworth, these figures emphasise the importance of guiding clients through a competitive landscape, where demand drives rental prices upward. The North West also boasts a solid rental yield of 6.9%, making it an attractive market for landlords seeking good returns.

Supply and Demand: A Gradual Rebalancing

Supply in the rental market has seen a modest improvement, with available rental properties up by 13% compared to last year. However, availability is still limited, with supply levels remaining 27% below those in 2019. This ongoing shortage means that although tenants have a slightly larger pool of rentals, competition for quality properties remains high.

Data shows that each available rental property receives an average of 15 tenant enquiries, down from 23 a year ago. While this reduction reflects a decrease in extreme competition, demand remains nearly double the pre-pandemic average of eight enquiries per property. This demonstrates that the market still favours landlords, especially in high-demand regions like the North West.

Increased Flexibility in Rental Pricing

An emerging trend is the rise in price reductions for rental properties. Over 21% of listings have seen reductions before finding tenants, up from 16% last year. This increase signals a shift towards more flexible pricing, with landlords adjusting rents to meet affordability constraints and attract tenants in a cost-sensitive market.

For renters, this increased price flexibility presents an opportunity to negotiate and potentially secure better rental deals, especially in regions where supply is gradually improving. For landlords, it underscores the need to set realistic, market-aligned prices to avoid prolonged vacancies.

Policy Pressures and Cost Implications for Landlords

Landlords in the UK face significant regulatory changes and potential costs associated with upcoming government policies. The anticipated increase in Capital Gains Tax, combined with new Energy Performance Certificate (EPC) regulations, is prompting some landlords to consider selling their rental properties. By 2030, all rental properties must achieve a minimum EPC rating of C, affecting an estimated 2.9 million properties across the UK. The required upgrades are expected to cost landlords around £8,074 per property on average.

Due to these anticipated costs, a record proportion of former rental properties—18%—are now listed for sale. This sharp increase compared to 8% in 2010, highlighting the growing impact of regulatory demands on landlord decisions. For renters, this trend could translate into fewer available rental properties in the short term as more landlords choose to exit the market rather than incur upgrade costs.

Regional Rental Yields and Investment Insights

Rental yields across the UK vary significantly by region, offering different levels of return on investment. In the North West, the average rental yield currently sits at 6.9%, making it one of the more lucrative regions for landlords. The North East and Scotland report even higher yields, reaching 8.3% and 8.5%, respectively, largely due to high demand and relatively affordable property prices in these areas.

In contrast, London's rental yields are among the lowest in the country, averaging 5.7%, reflecting both high property values and the slower growth in rental prices. For landlords seeking strong returns, the North West's yield rates and demand levels make it a particularly attractive investment region.

Looking Ahead: What's Next for the Rental Market?

Rightmove's data suggests that policies supporting landlords with tax reliefs or incentives for energy-efficient upgrades could help maintain rental supply and reduce tenant affordability pressures. For tenants, any measures stabilising rent growth or increasing availability would ease some of the challenges posed by high demand and limited supply.

In the North West, Farrell Heyworth will watch these developments closely, helping landlords navigate potential changes while supporting tenants in finding quality homes within their budgets.