The UK rental market will remain under pressure as the long-term population rises.

Renters in the UK are facing tough times as rental costs have soared amid a swelling cost-of-living crisis. There is no sign that the situation will improve anytime soon. As landlords cope with the impact of persistent interest rate hikes on mortgages and deal with new regulations, rents are set to skyrocket. Landlords with buy-to-let mortgages have witnessed a substantial cost increase following a series of interest rate rises.

This has led some landlords to implement significant rent hikes while others opt to sell their properties. Even mortgage-free landlords are increasing rents. The surge in borrowing costs is compelling many potential homebuyers to remain in the rental sector for longer, leading to heightened demand. If demographic forecasts become honest, there could be sustained pressure on housing affordability and the private rental sector. Population growth is one of the critical reasons for the crisis. A need for more quality housing supply and increased pricing indicate potential challenges.

United Kingdom Census

The UK Census projects a seven percent population increase, which can reach around 60 million by 2045. However, house-building falls short of targets, with a 53 percent year-on-year drop in new registrations and a 15 percent decrease in completions, as per the National House Building Council's latest quarterly statistics. Only 234,000 new homes were built last financial year, far less than the government's target of building 300,000 new homes annually.

National Statistics (ONS) Data

According to Office of National Statistics (ONS) data, the cost of building homes is overtaking earnings growth. In 2002, the average house price in England was 102,000, and the average salary was 20,739. In 2022, the average house price has surged to 275,000, while the average wage increased to 33,208. London stands out as the least affordable home location, with the average house price more than tripling to 525,000 in 2022 from 174,000 in 2002. The ONS notes that affordability ratios have risen from 4.92 in 2002 to 8.28 in 2022.

Rent prices are projected to keep going up in the short run. Looking ahead, there is a prediction of nearly a four percent increase in the coming year, and the outlook for the next five years suggests an average annual rental growth of five percent. In simpler terms, rents are expected to rise steadily in the upcoming years, with a yearly increase of around four percent expected in the immediate future and an average of five percent per year over the next five years.