Rental growth slowed last year as the cost of living crisis limited how much landlords could charge tenants to boost their buy-to-let portfolios.
The latest HomeLet Rental Index for December shows average rents were up 8% annually during 2023, below the 10.8% recorded in 2022.
It comes amid warnings that the rental market will slow as tenants hit the limit of what they can afford to pay, while lower mortgage rates and falling house prices could reduce demand and push more renters to buy.
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There are already signs of landlords charging lower rents.
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The average rent was down 0.9% between November and December 2023 to £1,268 per month.
Landlords may be charging lower rents to attract tenants but they are also facing extra pressures from higher buy-to-let mortgage rates and reduced tax reliefs, hitting the profits from running a buy-to-let portfolio.
What happened to the rental market in 2023?
The East Midlands was the only region to experience monthly rental growth in December, up 0.3%, according to HomeLet.
All other UK regions showed a fall, with the largest drop in London, down 2.2%.
The capital remains the most expensive place to rent though, with average rents of £2,127 per month in December.
The cheapest region where landlords were charging the lowest rent on average, according to HomeLet, was the North East, which saw a price decrease between November and December 2023 of 1.2% to £657 per month.
There are still growth opportunities for buy-to-let investors though, particularly where demand remains high.
Property website Rightmove says that in some areas, fierce competition to secure available homes and rising rental prices led more renters to explore new areas outside of cities.
Across ten major cities, 54% of renters looking for a new a home were looking to move outside of the city they lived in rather than within it in 2023, compared to 51% in 2022.
This included areas such as Birmingham, Bristol and Edinburgh.
Meanwhile, London, Manchester, Bristol, Glasgow and Birmingham were the top five most searched for locations for renters in 2023, giving landlords an idea of demand for this year.
Will rents fall in 2024?
Landlords are already struggling to make a profit from buy-to-let due to extra regulations and higher mortgage rates.
There are only so many increases that tenants can take but the one advantage for landlords is the low levels of supply and high demand.
Estate agency brand Savills has predicted that rents will rise by 6% this year.
But it warns an “affordability ceiling” will limit growth between 2025 and 2028.
Zoopla is predicting that annual UK rental growth will halve to 5% by December 2024.
It forecasts that London will have annual rental growth of 2% next year - the lowest level since 2021.
“Landlords will have to do battle with a familiar array of struggles, including a lack of stock, rising costs and prohibitively expensive buy-to-let mortgage rates,” says Andy Halstead, chief executive of HomeLet.
“For those reasons, combined with lingering high inflation and the country’s financial crises, it’s unlikely we’ll ever see rental prices drop to the rates they were at when we were exiting the Covid-19 pandemic. The impact of that, alongside questionable budget decisions and overall weak management of British finances, means that we estimate by this time in 2025, rent increases of between 5% - 10% won’t be surprising."
