"Tenants fortunate enough to be protected from higher rents by their landlord or longer contracts are increasingly seeing their rents rise. These increases for renewing tenants tend to be lower and stretched over a longer period than for newly let homes, often meaning tenants still pay below-market rate"
- Aneisha Beveridge - Hamptons
Tenants renewing an existing contract in Great Britain saw their rent rise by an average of 8.3% over the last 12 months, outpacing rental growth of 6.4% on a newly let property, according to the latest market analysis from Hamptons.
88% of tenants renewing an existing contract so far in 2024 saw their rent increase. This compares to 61% of landlords who achieved a higher rent when a new tenant moved in.
However, tenants who stay put and renew their contract are still paying 13.4% or £178 pcm less on average than someone who moved into a new home. This is reducing the incentive for people to move.
The annual pace of rental growth on newly let properties continued to slow in April, however, rents edged up 0.8% month on month.
This marked the largest monthly increase this year, suggesting that the pace of annual rental growth may settle around this level.
Rental growth for newly let homes peaked at 12.0% in August 2023, with the pace of increases nearly halving since then to 6.4% during the year to April 2024. However, tenants renewing an existing contract to stay in the same property are seeing their rent begin to catch up with those rents being achieved on newly let properties on the open market.
So far this year, 61% of landlords who let their home to a new tenant have been able to secure a higher rent than they had been achieving, down from 80% in 2023.
Meanwhile, 88% of landlords who renewed an existing contract increased their tenants' rent so far this year.
In percentage terms, tenants are now facing bigger rent rises when they renew their contract rather than moving home. While the rent on newly let homes increased by 6.4% over the 12 months to April 2024, the average rent paid by a tenant renewing their contract rose by 8.3%.
This means a tenant renewing their contract is paying £1,151 per month on average, but this is still 13.4% less than a tenant signing a new contract to move into a new home. This gap equates to £178 less per month, saving a tenant who stays put £2,135 per year on average which partly explains why fewer tenants are moving.
However, these renewal increases are only just starting to close the gap with rents on the open market that have been rising significantly over the last 18 months.
Back in April 2018, the average tenant who moved into a new property paid just 1.1% (or £8 pcm) more than a tenant renewing their contract. Since then, open market rents have risen 38%, whilst rents on existing tenancies have risen 21%.
Landlords have generally increased rents by less than market rates over the last two years which means tenants have increasingly found themselves financially better off staying put rather than moving home. While this gap has started to close, the difference between what sitting tenants and new tenants are paying remains high compared to historic levels.
With tenants finding themselves materially better off by staying put, the number of tenants moving home has fallen to levels last recorded during the pandemic when the country was partially locked down.
The English Housing Survey reports that in 2022/23, 15% fewer tenants moved home compared to the five-year average between 2015 and 2019 (1.01m vs 1.19m. This analysis of the number of lets agreed more recently suggests that in 2023/24 the number of renters moving home will be around 17% below the pre-pandemic average, falling below one million moves.
The annual pace of rental growth on newly let homes in Great Britain continued to slow in April, with growth falling from 6.7% in the year to March to 6.4% last month.
However, rents edged up 0.8% month on month, the largest increase this year. This suggests that we’re unlikely to see the pace of rental growth slow much further. Rather, annual growth looks set to stabilise around the 6% mark, which is significantly higher than the 2.5% average annual growth rate recorded pre-Covid.
Strong rental growth on the open market means it has taken an average of 20 months for the average rent to rise by the equivalent cost of an extra bedroom. This essentially means that tenants have lost a bedroom with the average one-bed now costing the same as the average two-bed did 20 months ago. And the average two-bed rent has also risen to the level of the average three-bed rent 20 months ago.
When rental growth for newly let homes peaked late last year, it took just 14 months for average rents to rise by the equivalent of a bedroom. This is the shortest period on record since the Hamptons lettings index began. This compares to an average of between 50 and 70 months pre-Covid when rental growth was typically running at between 2% and 3%.
Across Great Britain, there are 28% more rental homes on the market than last year. However, the rate of increase is slowing, having peaked at a 34% year-on-year increase in January 2024. Longer-term, downward pressure on stock levels persists. There were 40% fewer homes available to rent than in April 2019 as private landlords sold more properties than they bought.
Inner London rents on newly let properties fell 2.8% on the same time last year, the only region in the country to record a fall. This is the first time they have fallen on an annual basis since the easing of lockdown at the end of 2021, a period over which rents here have risen by 35%.
Aneisha Beveridge, Head of Research at Hamptons, said: “Many tenants had enjoyed years of no or below-inflation rent increases, particularly when rents weren’t rising much on the open market and mortgage costs were falling.
"Landlords were often content with a small gap between the market rate for their home and what their tenant was paying. However, over the last two years, strong rental growth on the open market has meant that the gap between market rates and what some tenants were paying rose significantly.
“Tenants fortunate enough to be protected from higher rents by their landlord or longer contracts are increasingly seeing their rents rise. These increases for renewing tenants tend to be lower and stretched over a longer period than for newly let homes, often meaning tenants still pay below market rate. But even so, these hikes can still add up to hundreds of pounds a month.
“The large gap between market rates and what many tenants are paying is a big disincentive for them to move unless they have to. Moving increasingly means getting less home for more money. While time will eventually close the gap between what sitting and new tenants are paying, it may take longer if rental growth on the open market starts picking up again.”
