London rents exceed UK record increase in April

UK home rents rose at a record pace last month, with London renters facing even bigger increases as higher borrowing costs and a housing shortage pushed up prices.

According to data published by the Statistics Office on Wednesday, rents for private properties across the country rose by 4.8 percent in the 12 months to April, the largest increase since national data series began in 2016. Capital city tenants faced an even greater increase of 5 percent, which is the highest rate since November 2012.

“The rapid rise in UK rents shows no sign of abating,” said Aimee North, head of housing market indices at the ONS.

The rise in rents is due to property ownership becoming increasingly expensive following a sharp rise in borrowing costs. The average interest rate on new mortgage loans rose to 4.4 percent in March, the highest level since 2008. Data from the Bank of England was published at the beginning of May.

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“As long as mortgage rates remain high, more Britons will be inclined to rent rather than own a home,” said Myron Jobson, financial analyst at Interactive Investor.

Line graph of London rental prices rising rapidly against UK rates (% change)

Tom Bill, head of UK residential research at Knight Frank, said a lack of suitable properties was partly to blame for rising rents, making “life more difficult for more and more tenants”.

Rising mortgage costs were reflected in ONS data which showed UK house prices fell by 1.2 per cent between February and March, the sixth consecutive monthly decline.

“The housing market continued to struggle in March as affordability issues dampened buyer demand,” said Gabriella Dickens, economist at Pantheon Macroeconomics.

Mortgage costs have risen rapidly as the BoE has pushed through successive rate hikes, from an all-time low of 0.1 per cent in November 2021 to the current 4.5 per cent. Markets expect a further rate hike in June after inflation moderated less than expected in April.

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According to the ONS, average house prices in the UK were £285,000 in March, down £8,000 on the peak in November but up £11,000 on the same month a year ago.

The annual growth rate of house prices slowed to 4.1 percent in March, the lowest level since September 2020, and from 5.8 percent in the previous month.

According to Dicken, house prices will be supported to some extent by a modest pick-up in real household incomes following an increase in welfare payments in April and lower energy prices. However, he warned that house prices were “on a downward trend” for the rest of the year as mortgage rates remained high.