London has seen rents rise by an average of 45 per cent over the past 10 years, with the cost of renting a property in the capital reaching a peak.
Strong demand has pushed London rents to reach a 10-year high, according to new research from residential property market analysts Hometrack. A rise in demand for rental properties has been bolstered by employment growth and inward migration from the rest of the UK, as well as overseas. Furthermore, an increasingly complex mortgage process has led to many first time buyers turning to the private rental sector in order to find a home.
However, other areas of the country have not fared so well. Whilst the South of England has shown consistently strong growth, other areas, such as Yorkshire and Humberside have stagnated somewhat. The North West and North East also saw decline, falling by 7 per cent and 4 per cent respectively.
The stark contrast between the capital and the rest of the country was attributed to the fact that jobs grew up to three times faster in London after the financial crisis. However, in spite of this, rental growth has continued to outstrip earnings, leading to high levels of unaffordability.
The annual rental growth in the capital stands at 4.5 per cent, and has remained at that level since 2010. In contrast, annual rental growth at national level is just 2.7 per cent per year, and is generally consistent with wage growth.
Insight Director at Hometrack, Richard Donnell, said: ‘This new report aims to provide an important long run context for the current trends in rents and rental affordability and what this means as we look forward. Rents fell by between 5 per cent and 12 per cent in 2008/09 and this explains why rents in parts of the country outside of London, where rental growth has been subdued, are only just back to where they were a decade ago. London has the largest and most liquid rental market. Demand in the capital has been buoyed by employment levels rising two to three times faster than other regions, as well as the much higher deposit and household income required to buy making the transition from renting harder than in the past.’
Donnell added: ‘Ultimately rental levels need to reflect affordability and the buying power of tenants. In London, affordability is stretched and demand is weakening on concerns over the outlook, which we expect will lead to average rents in the capital falling by one to two per cent over 2017. ‘Conversely, rental growth outside of London is set to continue to track earnings growth with rents rising at two to three per cent per annum. The greatest upside for rents is in the Midlands and northern regions where rental affordability is the best it has been for a decade.’