Did the UK Property Market Hit Peak Rental Growth in 2023?

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What Lies Ahead for UK Renters?

2023 was another year of huge rental growth in the UK market, with the annual percentage increases hitting double digits seven months out of the year.

According to Zoopla, this growth was so rapid that renters are now paying an extra month’s worth of rent per year when compared to this time last year.

The property portal website has calculated that the average rent for new lets reached £1200 in November, which is 9% higher than a year ago. At this time, another £1200 has been added to their annual rental costs, equivalent to paying an extra month of rent compared to the year before.

While 9% is a hefty annual rise, it actually constitutes a slowdown in the market. So, will UK rental growth flatten in 2024? And what are the best ways to invest £100k in property.

This dip to single digits after nearly two years of rental growth hitting over 10% increases suggests that the UK market as a whole is past ‘peak growth’, but it’s a different story when you look at the regional breakdown.

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London Rental Growth Leads the Slowdown

London had the most significant increase in the amount of rent paid, growing by £157. But because inner London already has by far the most expensive rent in the country, this only translates to a yearly percentage increase of 8%, one of the lowest in the country.

London seems to be leading the country’s overall slowdown in growth, as the capital’s rental inflation dropped to 8% from a massive 15.9% a year ago.

London and some other parts of the South are believed to have reached the ceiling of affordability for rental growth, as the sky-high rents and cost of living are starting to become simply unviable for the average tenant. Why not learn more about how to make money from property with our property guide.

However, some London areas are still experiencing some of the highest rental growth in the country.

Read More: Take a look at our earlier research to find the best areas to invest in London.

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Room For More Rental Growth in the North

The North West experienced the biggest annual percentage increase in England at 10.8%. According to Zoopla’s calculations, this translates as an increase of £81, making the average monthly rent £831. This is the second-highest percentage increase in the UK after Scotland.

The North East recorded the second highest percentage increase in England with 9.7%, a £60 rise bringing the average to £672. This is the fourth-highest percentage increase in the UK.

According to another recent rental report from Zoopla, there will continue to be substantial growth outside of London in other regions, where there is still room for growth when affordability is considered. They predict that London is set for 2% growth this year, while other regions are forecast to experience 5-8% growth in 2024.

Learn More: To find out more about some North West buy-to-let hotspots, check out our area guides for Bootle investment properties and buy-to-let Southport.

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Scottish Rent Controls Cause Big Growth

Scotland topped Zoopla’s table ahead of the North West with 12.1%, an increase of £84, making the average £780.

Scottish cities, such as Edinburgh, have registered some of the largest rent increases in the country, bringing Edinburgh property investment to the attention of UK landlords.

However, these hefty increases are due to the rent cap of 3% on annual rises to existing tenancies that was introduced by the Scottish Parliament in September 2022.

This has caused Scottish landlords to hike their prices at the beginning of tenancies. So when it comes to the average growth in rent for new lets, Scotland is leading the charge, but the cap has stunted the growth of existing tenancies and made Scotland less attractive overall for landlords.

Which UK Area Will Have Strongest Rental Growth in 2024?

London buy-to-let investment has historically been a stable choice for property investors, and the high rental income that can be achieved is appealing. However, the astronomical property prices make for a high initial barrier to investing, and even then, it will take a long time to get a worthwhile return on investment because of London’s notoriously low rental yields.

Regarding rental growth, Northern areas experienced higher percentage increases than Southern regions in 2023, and Zoopla predicts that regions outside of London are set for better growth this year. Taking this into consideration, it seems that all signs point to the North as the best area for rental growth in 2024.

In fact, recent research from Savills states that the North West buy-to-let market is set to be one of the UK property market’s top performers between 2024 and 2028, with a 9.2% return forecast. The North West region could be considered the best place to buy to let this year.

Further Reading: Delve deeper into the UK housing market with RWinvest’s latest insights and discover the best investment properties for sale in 2024!