Rising rents have dominated the headlines in recent months thanks to high interest rates and mortgage rates as well as limited supply ramping up prices at a time of high demand. As a landlord, you might have already had to increase rents for your tenants, or it might be something you are considering shortly.
But you might be wondering whether raising rents is still possible or whether the fact that inflation is falling and that interest rate cuts are imminent leaves you little wiggle room to negotiate rent rises with tenants.
Your hand might have been forced already if your mortgage costs have gone up on your rental property. But it might be that your property is mortgage-free and you might be wondering if you can therefore still justify an increase.
Raising rents to market levels in your area
Rents must be deemed reasonable and fair. A good barometer is to benchmark your rental prices against similar properties in your local area. This gives you the proof you need to illustrate to tenants to raise rents if yours is below market levels – and that applies whether you have a mortgage or not. Remember you are running a business here.
Certainly, rent forecasts predict further rises, albeit at a lower rate than seen previously. In Zoopla’s June rental market report, it suggested that the rate at which rents are rising has slowed down to 6.6% for new lets. That’s down from 10% a year ago and from a 16% high in October 2021. The pace of growth is the slowest in 2.5 years, taking average rents to £1,226. ONS figures for the 12 months to April 24 suggest average private rents increased by 8.9%, meanwhile.
But rents can vary widely depending on the area. In Peterborough, for example, average rents were up 8.2% in April 2024 to £892, according to the Office for National Statistics (ONS).
Demand remains high
Competition for rental properties remains high, however, as demand continues to outstrip supply with 15 households chasing each rental property. That’s more than twice the number pre-pandemic and in part is also due to buyers being priced out of the market to purchase.
However, demand is easing off too. It’s down 25% over the last year, according to Zoopla’s research, and in the east of England it’s down by 30%, the highest fall in the UK. Availability is also beginning to improve, with the average number of homes available to rent up by 18%.
Taking all these factors into account, predictions suggest that rental growth will continue to slow to 5% over this year, according to Zoopla. Affordability is another factor influencing how rent prices might react over the coming months. Renters have faced their own cost increases and a recent Financial Conduct Authority survey found that 42% of renters in England had seen a fall in their disposable income over the last 12 months or had no disposable income at all.
So at some point, renters will no longer be able to pay increasing rents. That means it’s unlikely that rents can rise much further, and the ceiling is in sight. A slowdown is inevitable.
We Can Help
At Progressive Lets we are experts in the rental market in the Peterborough area and help landlords find and manage properties within a 50-mile radius. Get in touch to find out more.
