UK rents reach record high as mortgage rate rises hit housing market

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UK rental prices rose to the highest on record while house price growth declined as higher mortgage rates hit the property market, according to official statistics published on Wednesday.

Private rental payments paid by tenants increased by 5.1 per cent in the 12 months to June, the largest annual percentage change since the data series began in January 2016, figures published by the Office for National Statistics showed.

London’s annual percentage change in private rental prices was 5.3 per cent in the 12 months to June, above the England average and its highest annual rate since September 2012.

Neal Hudson, a housing market analyst, said the surge in rental prices was not unique to the UK. A post-pandemic bounce back in demand, combined with rising interest rates that push up landlords’ mortgage costs, have led to similar price rises in US, Canada and Ireland.

But in the UK, Hudson said, the situation had been exacerbated by a shift to longer tenancies, which had reduced turnover, and by landlords selling or shifting to temporary lettings, squeezing an already scanty supply of rental properties. “I had wondered if it was a temporary issue but it’s going on for longer,” he said.

Recent surveys have shown rental demand strengthening as higher mortgage rates leave fewer people able to buy a property.

The ONS data showed that average UK house prices fell by 0.4 per cent, on a seasonally adjusted basis, between April and May. This took the annual rate of increase down to 1.9 per cent, from a revised 3.2 per cent in the previous month.

The weakest growth over the past year has been in London, where prices are highest and buyers more indebted.

“House prices already were falling before the renewed jump in mortgage rates,” said Gabriella Dickens, economist at the consultancy Pantheon Macroeconomics, adding that more timely surveys suggested the price falls would become steeper in the coming months.

House prices have so far proved more resilient than many economists had expected in the face of rising interest rates, although the number of transactions has fallen sharply.

Dickens noted that the fall in May still left average prices a “whopping” 24.6 per cent above their average level in 2019.

Hudson said many people appeared to be settling for smaller properties, while taking on mortgages with longer terms and payments that would absorb a bigger share of their income.

This resulted in “an even worse version of the already failing housing market we had last year” — with new buyers straining themselves for “a home that is probably smaller, further away and less appropriate”.