Rents in the capital have gone up by 45% since 2007

Buy-to-let landlords in London have increased rents by 45% on average over the past decade, as the cost of renting in the capital hits a 10-year high, on the back of strong demand and growing unaffordability, fresh research has revealed.

New analysis by residential property market analysts, Hometrack, shows that greater demand for rented accommodation has been fuelled by strong growth in employment, inward migration from the rest of the UK and overseas, as well as constraints in the accessibility of mortgages for first-time buyers.

In stark contrast to London, and other areas of southern England, rental growth in some other parts of the country has been broadly flat over the past decade.

In Yorkshire and Humberside average rents have remained stagnant, while in the North West and North East rents have actually fallen by 7% and 4%, respectively.

The study suggests that the main reason for this difference is that jobs growth after the financial crisis has been up to three times faster in the capital.

Rental growth in the capital, which has averaged 4.5% annually since 2010, has rapidly outpaced earnings leading to the existing levels of unaffordability.

Conversely, annual rental growth at a national level, excluding London, has been averaging just 2.7% per annum and largely tracked the growth in average earnings.

However, in southern parts of England and the Midlands rental growth has started to outpace earnings from 2013 onwards as economic conditions improved. This recent shift has led to an overall 20% hike in average rental values in these regions since 2007.

Richard Donnell, Insight Director at Hometrack, said: “This new report aims to provide an important long run context for the current trends in rents and rental affordability and what this means as we look forward. Rents fell by between 5% and 12% in 2008/09 and this explains why rents in parts of the country outside of London, where rental growth has been subdued, are only just back to where they were a decade ago.

“London has the largest and most liquid rental market. Demand in the capital has been buoyed by employment levels rising two to three times faster than other regions, as well as the much higher deposit and household income required to buy making the transition from renting harder than in the past.”

Another important factor is the growth in sharing among renters which means in many parts of the capital, particularly in inner London, there are multiple incomes combining to pay the rent, according to Donnell.

Hometrack’s analysis shows that over the long run tenants spend between 32% and 37% of earnings on rent at a national level.

Donnell added: “Ultimately rental levels need to reflect affordability and the buying power of tenants.

“In London, affordability is stretched and demand is weakening on concerns over the outlook, which we expect will lead to average rents in the capital falling by one to two per cent over 2017. “Conversely, rental growth outside of London is set to continue to track earnings growth with rents rising at two to three per cent per annum.

“The greatest upside for rents is in the Midlands and northern regions where rental affordability is the best it has been for a decade.”

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Written by: Houseladder