Rental price growth is beginning to slow in London and other major cities, while smaller towns and rural areas continue to see rents rise. The latest trends in rental prices reveal a mixed picture across the UK, with different regions experiencing varying degrees of rental inflation. Here's a closer look at what’s happening in the rental market in September 2024.

Over the past year, rental inflation has decelerated to 5.4%, marking the slowest rate of growth in nearly three years. This slowdown is especially noticeable in large cities like London, where renters are reaching the limits of what they can afford. However, in more affordable towns and rural areas, rents continue to climb, with some regions seeing inflation rates above 10%.

While the supply of rental properties is increasing—up by 18% compared to last year—there are still 25% fewer homes available for rent than in 2019. This persistent shortage of rental properties, coupled with strong demand, is keeping rental prices high. Even though demand has cooled slightly from the unprecedented levels seen during the pandemic, it remains double what it was before 2020.

One factor contributing to the ongoing rental market strain is speculation about potential tax changes for landlords. Many property owners are considering selling, which could further tighten the supply of available rental homes. As more landlords exit the market, the choice for renters becomes even more limited, which could sustain or even increase rental growth in the short term.

Although rental demand is still high, it has softened somewhat in 2024. The pandemic-driven surge in demand has waned, and lower mortgage rates are allowing some renters to transition into homeownership. Nevertheless, many would-be buyers are still priced out of the housing market, particularly in the southern parts of England, where homeownership remains largely unaffordable. As a result, renting continues to be the only viable option for a significant portion of the population, adding further pressure to the rental market.

In urban areas, and other core cities, the pace of rental inflation has slowed considerably. London, which saw rents rise by over 12% last year, is now experiencing more modest growth, with rents increasing by just 2.5%. Similarly, other major cities are seeing rental growth slow to around 5.8%, down from double-digit increases a year ago. These large cities account for 30% of all privately rented homes in the UK, making them key hubs for the rental market.

On the other hand, smaller towns and rural areas continue to experience above-average rent increases.

The imbalance between supply and demand continues to affect the rental market. Despite the increasing number of rental properties, the overall shortage persists. There are still 24% fewer homes available for rent compared to pre-pandemic levels, limiting options for many renters. The steady flow of landlords selling properties in recent years has contributed to this shortage, with formerly rented homes now making up 12.5% of all homes for sale as of July.

Looking ahead to the rest of 2024, it is expected that rental inflation will slow further, with rents increasing by around 3-4% by the end of the year. While major cities will likely see the biggest slowdown, rural and suburban areas may continue to experience above-average growth. The lack of supply and ongoing demand will keep rents high, with the unaffordability of homeownership ensuring strong demand for rental properties well into 2025.

In summary, the rental market is stabilising in cities but remains under pressure in towns and rural areas.