Recent studies conducted by Eurostat (the official statistics bureau of the EU) and ARLA (the Association of Residential Letting Agents) have shown that the cost of renting in Britain is rising because the number of properties available to let is falling. However, separate studies also show that it’s becoming harder for younger generations to buy a home, with many would-be first time buyers moving back in with their parents.
Lower supply and high demand cause prices to rise
This May, the total number of properties for let reached its lowest level, with the supply of homes available for rent falling by 7% since April. ARLA also note that, while the number of properties available for let fell, demand stayed the same, potentially leading to rising rental costs.
David Cox, the Managing Director of ARLA, has stated that more must be done to meet the housing need and bring rents down. He believes that the Government’s latest proposals to build more houses are essential and can help turn the market around, reducing rents by adding to the supply.
The latest HomeLet Rental Index shows that, in the three months to July, rental rates for new tenancies in the UK rose by 11.8% when compared to the same period last year. The average rent for tenancies in the three months to July 2015 was £977pcm, this is 11.8% higher than July 2014 when it stood at £874.
Comparing Britain to Europe
Eurostat data revealed that this rise has seen Britain become the most expensive place to rent in Europe. The data produced by Eurostat was crunched by the National Housing Federation, and showed that the average rent for the UK was almost double the average for the continent.
It’s important to bear in mind, however, that the rate for Britain is largely skewed and inflated by London prices, where the Eurostat data shows rents that are £400 above the national average in the UK.
Our data supports this, but suggests that London is skewing prices to a greater extent than the Eurostat data suggests. It shows that, in the three months to July 2015, average rents for new tenancies in London were 9.5% higher than the same period last year, with the average rental value for new tenancies standing at £1,538pcm. The average rental rate for new tenancies in London was £777 higher than the average for all other regions.
It’s notable that, when compared with the amount spent on rent as a percentage of gross income, although Britain’s rents are still the most expensive, the gap narrows significantly.
According to the Eurostat data, the cost proportional to gross income is actually similar to a number of other countries. In fact, the figures show that Britons spend the same amount on rent, as a percentage of their gross income, as Spaniards and only 4% more than Sweden and Romania.
Fig 1: National Housing Federation analysis of Eurostat data using the European Survey on Income and Living Conditions.
Rents rise but it’s also hard to buy
Although rental rates are rising, a report produced by Halifax shows that those aged between 20 and 45 are also finding it incredibly hard to get on the UK housing market, with it appearing inaccessible to many unless they’re given their deposit by the ‘bank of mum and dad’.
Halifax’s Mortgage Director Craig McKinlay stated that the report showed that "Whether it’s giving their children a cash lump sum or providing a roof over their heads while they save, it’s clear the bank of mum and dad will have a role to play in helping their children get on the property ladder for the foreseeable future."
The Halifax research showed that 28% of the 1,000 parents, of people aged between 20 and 45 polled, had taken their offspring back into the family home, a rise of 4% since 2012.
Much like with rentals, there appears to be a shortage of stock on the market for those looking to buy property. This has led to rising house prices and means that two thirds of first time buyers are now relying on financial help from parents in order to buy their first home.
With increases in rental rates looming on the horizon, lending criteria and checks have also never been stricter for those looking for a mortgage.