In the ever-evolving landscape of the UK rental market, the persisting theme is one of rising rents. This report provides a comprehensive overview of the current state of the UK rental market as of September 2023.

Rental growth trends have seen rents for new lettings rise by an impressive 10.5% over the past year. This figure, although slightly lower than the 12.2% recorded the previous year, represents a continuation of double-digit rental inflation that has endured for a remarkable 18 months.

For the average renter, this translates into a substantial increase in costs, amounting to £2,800 over the last three years.

The driving force behind this growth isn't just an arbitrary increase in demand but rather the imbalance between supply and demand within the UK rental sector. While demand for rental properties has decreased by 20% from the previous year, it still hovers at 51% above the five-year average.

On the flip side, the supply of rental properties has increased by 20% compared to the previous year but remains 30% below the average for this time of year. This ongoing mismatch between supply and demand characterises the rental market across all UK regions and countries.

The implications of this imbalance are evident in the numbers: annual UK rental growth, currently at 10.5%, has slightly decreased from 12.1% recorded a year ago. However, this dip is primarily due to a moderation in demand and a slow improvement in supply. Despite this, average rents have surged by £110 per month over the last year, translating to an annual increase of £1,320.

Over the last three years, rents for new lettings have seen a staggering average increase of £2,772 per year, compounding the cost-of-living pressures faced by renters.

The rental market, however, remains trapped in a period characterised by low supply and high demand. While increased rental supply is the most sustainable solution to curbing rental growth, the levels of home construction and private landlord investment are dwindling and projected to remain weak into 2024, primarily due to higher borrowing costs.

Corporate landlords entering the market through 'build-to-rent' initiatives have provided some relief by boosting supply in various city centres. However, these rental levels set by corporate landlords are generally above average and don't possess the scale to impact the broader market significantly.

Furthermore, many existing renters are inclined to stay put rather than move and pay higher rents, further constraining supply. On average, estate agents now have fewer than 10 homes available for rent, down from the pre-pandemic average of 16.5 homes.

The UK's rental market is heavily influenced by multiple factors driving demand, including the strength of the job market, job creation, and record levels of immigration. The re-opening of international borders with an influx of overseas students has also played a role, boosting demand. However, despite demand dropping by 20% from the previous year, it remains above the five-year average.

Another driver of rental demand has been higher mortgage rates, increasing the cost of buying and thus keeping more potential buyers in the rental sector. Mortgage repayments for first-time buyers now surpass rental costs at 5.5% mortgage rates, with the most significant impact felt across southern England.

Looking ahead, the supply-demand imbalance is unlikely to rectify itself as we transition into 2024. Rental growth in the near term will be more influenced by the affordability of renting and how renters adapt to higher rents, rather than substantial shifts in supply or demand.

While UK earnings growth has accelerated in recent times, rents for new lettings continue to outpace it, further deteriorating rental affordability. Over the last decade, the average rent as a percentage of gross earnings has remained relatively consistent, fluctuating between 25% and 28%, with an average of 27.2%. However, with double-digit rental growth, rental affordability has now reached its lowest point in over a decade, at 28.4%.

Increasingly unaffordable rental costs should naturally reduce demand and lead to a moderation in the rate of growth. However, due to the substantial supply-demand imbalance, rental growth is expected to slow at a more gradual pace. If supply remains limited, a more substantial reduction in demand would be required to bring rental growth down to around 5% annually, which seems unlikely.

In the face of higher rents and a scarcity of supply, renters are being compelled to explore alternatives such as renting smaller homes, relocating to more affordable areas, or sharing properties with others to reduce costs. While sharing may reduce costs per renter, it also means less private space, and it supports higher headline rental values.

Across various cities, rental growth rates span from 6% per annum, as high as 15.6% in some regions.