Executive summary 

Surge in demand for rental properties in August, especially in cities

• A widening imbalance between rental demand and supply has pushed rental growth in the UK excluding London to the highest level since 2008
• Rental growth outside London at +5.0%, up from +2.2% in January
• London rental declines have bottomed out amid rising demand, reaching -3.8% in July, from -9.8% in February
• Rental growth back into positive territory in Manchester, Leeds and Edinburgh, after falling into negative territory at the start of the year
• The market is moving at the fastest rate since 2016, with average Time to Rent at 15 days across the UK UK average £943 Monthly rent, UK average UK rental growth outside London hits 13-year high Average rents across the UK outside London rose by 5% over in the 12 months to the end of July, the biggest increase since Zoopla’s index began in 2008.
• Rents have been pushed up by a resurgence in demand, especially in UK cities, over the summer, as the economy starts to open more fully, and university students look for accommodation as the new academic year begins.
• The average monthly rent outside London is now at £790, up from £752 in July last year.

Demand not being matched by supply In the year to date, rental demand is up 19% compared to last year, while the total stock of rental property is down 13%.

Examining August data in more detail however shows the scale of stock erosion which has been exacerbated by the pick-up in demand. The total stock of homes available to rent across the UK is around 30% lower compared to normal levels for this time of year. The rise in rental demand comes against a background of lower supply in the sector overall amid a decline in investment in the buyto-let sector since the introduction of the additional 3% stamp duty in 2016. While investment activity received a fillip over the last 12 months (as referred to in Zoopla’s recent House Price Index report) due to the stamp duty holiday, this is showing signs of slowing as the stamp duty holiday comes to an end. The delivery of build-to-rent homes (built and operated by large institutional investors) is on an strong upward trajectory, but this segment of the market is still small, and not enough to plug the gap of landlords who have already pared back their portfolios. As a result, supply is set to remain constrained across the UK, which will continue to put upwards pressure on rents. In Scotland, where rental demand has risen most sharply in recent months, the demand and supply dynamics are likely to be affected by mooted policy around rent controls, which will give landlords an additional factor to take into consideration in the future. However, at the same time, new legislation in Edinburgh is expected to increase the limitations on holiday lets, which could increase the supply of mainstream rented properties.

The strong levels of rental demand seen during August will moderate in line with seasonal trends, but overall demand for rental property is likely to remain higher than usual in the coming months, amid a swing back to city life. As ever, much will be dependent on the extent to which the current rules around COVID continue as they are, but if they do, the demand for rental property, coupled with lower levels of supply, will continue to put upward pressure on rents. In London, this will translate into rental growth returning to positive territory late 2021 or early 2022.