Rents nearing ‘affordability ceiling’

Rents are approaching an affordability ceiling according to Savills - but the agency admits it doesn’t see substantial new supply on the horizon.

The assertion comes in Savills’ new analysis of private and social rents plus owner-occupier mortgage costs to draw up a ‘total housing market’ value of some £200 billion.

The agency says this growth - of some £22 billion in just one year - comes on the back of unusually strong rental growth and higher interest rates for those who were either on a variable rate, came to the end of a fixed-rate deal, or moved home.

In terms of renting specifically Savills says the total cost of housing to UK tenants - private and social - hit some £101.9 billion in 2023, a £8.2 billion rise on the year.

This was generated by a 10.6 per cent increase in private rental costs, while costs for social renters grew by a lesser 4.1 per cent on the year.

“Homes to rent were in short supply in 2023 and demand high. This, combined with robust wage growth, fuelled an unusually high increase in the housing bill faced by tenants in the private sector” says head of UK residential research Lucian Cook.

“While it’s difficult to see where an increase in rental supply will come from, rents in the private rented sector appear to be rapidly approaching an ‘affordability ceiling’.

“This should slow the rate of growth, but renters will still be left spending a larger proportion of their income on rent than at any point in the last 18 years” he adds.

Savills says that overall London bears the biggest brunt of the housing bill, accounting for a quarter of all UK housing costs, and a third of all private rental costs.

London’s private rental bill exceeded £25 billion in 2023, and now makes up more than half of all housing costs in the capital for the first time.