London rents will cool next year – but tenants won’t be out of the woods yet
Rents will continue to rise in London next year but at a much slower pace than what has been seen over the past 12 months.
London landlords are expected to raise their prices by two per cent in 2024, a substantial decrease when compared to the nine per cent hike which was recorded by property portal Zoopla at the start of autumn.
Fresh analysis from the firm shows that as of October, rental prices have grown by nine per cent year on-year with the average household in London now forking out £2,125 per month on rental costs.
On a regional basis, rental growth has slowed most rapidly in London, down from 17 per cent a year ago to nine per cent currently.
While this may offer a slither of hope, it is likely that many of London’s 2.7 million private tenants in the capital will continue to struggle with affordability.
Increases in rent are continuing to outstrip rises in wages, as pay stagnation continues to wreak havoc on city dwellers finances.
Back in June, London mayor Sadiq Khan said that people in the capital are now reportedly £50k worse off since 2010.
Zoopla also said that the average London renter household of 1.25 people spends 40.2 per cent of earnings on rent compared to a UK average of 28.4 per cent.
However, hopes that prospective buyers will return to market next year following a fall in mortgage rates, may help loosen up the supply of homes available to rent in London currently.
Mortgages rates on a typical two year fixed deal have now fallen below six per cent for the first time since June.
The supply-demand imbalance in rented housing is not going to disappear in 2024, Zoopla said, but the market will become more balanced.
However, Richard Davies, chief operating officer of London estate agency Chestertons, predicts that the addition of new supply is likely to have a “dampening effect” on rental growth over the next two years.
“As a result, we forecast a five per cent increase in rents across the UK and London in 2024, followed by a drop to 3-3.5 per cent in 2025 as the accumulation of new supply begins to soak up demand,” he explained.
“Rental growth has been driven by an imbalance between limited supply of new rental properties coming to the market and a growing population of renters.”
He added: “We believe that rents are likely to rise further over the next two years as employment remains high and competition for rental properties is sustained.”
“However, we will see more supply coming to the market as rising yields have started to encourage more landlords back into the market and some financially-stretched homeowners are choosing to put their properties on the rental market in reaction to the jump in mortgage repayments.”