The UK rental market faces significant disruption as Savills predicts rents will increase by 17.6% over the next five years, driven by continued supply shortages and high tenant demand.
The agency highlights that landlord exits, spurred by tax changes and energy efficiency regulations, will exacerbate the supply crisis, pushing rents even higher.
Key findings:
- Demand vs Supply: While tenant demand has eased slightly from 2021-22 peaks, it remains high. Rental listings per letting branch in September were 16% below 2018-19 levels, and properties are letting 20% faster in 2024 compared to pre-pandemic averages.
- Affordability Concerns: National rents rose 4% in 2024, but London saw only 1.5% growth, reflecting a cap on what tenants can afford. London renters spent up to 43% of income on rent in 2023, hitting an affordability ceiling.
- Landlord Challenges: The 5% stamp duty surcharge on second homes and the 2030 EPC upgrade deadline could force many landlords to sell, further tightening rental supply.
Future outlook:
Savills anticipates rent growth to outpace income growth nationally until 2026, with more alignment expected towards the end of the decade. However, the chronic imbalance between supply and demand means rental pressures are unlikely to abate entirely.
Guy Whittaker, research analyst at Savills, comments:
“High demand and low supply have driven recent rental growth, and these pressures remain. However, affordability constraints in markets like London suggest growth will stabilise in the short term. Yet, as landlords continue to exit the sector, supply erosion may override these limits, driving stronger-than-forecast rent increases.”
Projected rental growth:
Year | UK Rental Growth | London Rental Growth |
2024 | 4.0% | 1.5% |
2025 | 4.0% | 2.5% |
2026 | 3.5% | 2.5% |
2027 | 3.0% | 2.5% |
2028 | 3.0% | 3.0% |
2029 | 3.0% | 3.0% |
Conclusion:
The combination of tax policy, regulatory pressures, and affordability constraints presents significant challenges for both tenants and landlords. With no clear solutions to address supply shortages, rental growth looks set to remain a defining feature of the UK housing market for years to come.