Record-Breaking Annual Surge: UK Rental Costs Reach Unprecedented Highs for Second Consecutive Month

blog post

Official data reveals that rental costs in the UK continue to climb, outpacing inflation and reaching new historical highs.

According to the Office for National Statistics (ONS), tenants nationwide experienced a 6.2% surge in rental expenses from December of the previous year.

This growth, the most substantial annual percentage change since the ONS began tracking data eight years ago, exceeds the 3.9% inflation rate recorded in December.

This increase mirrors the trend observed in November 2023, emphasizing the sustained upward trajectory of rents (ONS, date).

Despite an overall wage increase of 6.6%, in some regions of the UK, rental hikes have outpaced salary growth. Northern Ireland witnessed the most significant rise, with rents becoming 9.3% more expensive over the year.

While Wales experienced a 7.1% increase in rental costs by December 2023, England recorded a comparatively modest rise of 6.1%, with the capital leading the regions at 6.8% (ONS, date).

Affordability concerns are particularly acute in London, where rental costs represent 35% of earnings, exceeding the threshold of 30% deemed unaffordable by the ONS.

In contrast, the North East of England saw the smallest increase in rents at 4.6% (ONS, date).

This surge in rental costs contrasts with the downward trend observed in house prices after reaching pandemic-era highs. Anticipations suggest a slower pace of rental increase in London compared to the inflation rate in the coming year (ONS, date).

Hamptons estate agency estimates that by the end of the year, Britons will have spent a record £85.6bn on private rents, double the £40bn recorded in 2010. The report attributes these unprecedented rises to intensified competition for limited rental properties and the impact of rising interest rates on landlords' loans. The average rent for a newly-let home reached £1,348 per month in November, reflecting a 10.2% increase from the previous year (Hamptons, date).

The burden of escalating rental costs is notably felt by millennials, born between 1980 and 1994, who spent a record £36.9bn on rent in 2023. This reversal follows a period of declining rental expenses between 2016 and 2020 when more millennials transitioned to homeownership. Generation Z, born between 1995 and 2012, experienced the most substantial annual increase in rental costs, spending £30.5bn in 2023, a £6.3bn surge from the previous year. They now constitute 36% of all renters, up from 1% a decade ago. In contrast, Generation X, baby boomers, and the silent generation saw reductions in their rent bills (Hamptons, date).

Aneisha Beveridge, Head of Research at Hamptons, suggests that higher interest rates in the medium term are likely to extend millennials' duration as renters, contributing to the sustained rise in their rental expenses during a period when a decline might have been anticipated (Hamptons, date).

References: