Private rental prices paid by tenants in the UK rose by 2.6% in the 12 months to January 2016, up from 2.5% in the year to December 2015, the latest index shows.
The data from the Office of National Statistics (ONS) reveals that rental prices grew by 2.7% in England, 0.3% in Wales and 0.8% in Scotland with rents up the most in London at 3.9%.
It means that overall rents are up 0.1% in annual terms compared with the year to December 2015, and up 0.7% compared with the annual price increase in January 2015.
The regional breakdown of the figures shows that annual rental price growth varies, rising in Yorkshire and The Humber from 0.8% to 1.2%, and in the North East from 0.6% to 0.9%, whereas it fell in Wales from 0.7% to 0.3%.
Rental growth in Scotland has gradually slowed to 0.8% in the year to January 2016, from a high of 2.1% in the year to June 2015.
Rental prices in England show three distinct periods, increasing from January 2005 until February 2009, then decreasing from July 2009 to February 2010, and increasing again from May 2010 onwards. When London is excluded, England shows a similar pattern but with slower rental price increases from around the end of 2010.
Since the beginning of 2012, English rental prices have shown annual increases ranging between 1.4% and 3% year on year, with January 2016 rental prices being 2.7% higher than January 2015 rental prices. Excluding London, England showed an increase of 2% for the same period.
A shortage of suitable properties combined with strong demand, both from people priced out of the housing market and those who prefer to rent, lies behind these increases, according to Steve Bolton, founder of Platinum Property Partners.
He believes that the Government is taking an enormous gamble on the private rental sector through its announced changes to buy to let investment and this could affect prices and growth.
‘Ending tax relief for landlords and levying a higher rate of stamp duty will ultimately increase investor’s costs, forcing many to push tenants’ rents up to remain profitable. Standards may also be reduced, with landlords having fewer funds to invest in the quality of their property. In some instances, landlords will be forced to sell, adding additional strain to private rented sector housing stock,’ he explained.
‘It is hard to see how the proposed changes will benefit prospective first time buyers. The biggest barrier to homeownership is a lack of adequate property supply, and discouraging buy to let investment will do nothing to alleviate this. With prices standing at such high levels, first time buyers need to raise a substantial deposit and as rental prices continue to grow this will become ever more difficult,’ he added.
Jonathan Hopper, managing director of the buying agents Garrington Property Finders, believes that the traditional January uptick in activity and a scramble by second home and buy to let buyers to complete before stamp duty rises in April has boosted prices in several of the most in-demand regions.
‘After a strong end to 2015, prices in London have returned to a truly vertiginous rate of annual growth, and annual price rises in South East are comfortably back into double figures. Underpinning such rapid price rises is a fundamental disconnect between unrelenting demand and an endemic lack of supply,’ said Hopper.
‘But while demand across the board is being buoyed by robust buyer confidence and the growing perception that interest rates won’t rise for a year or more, these figures do not yet factor in the impact of the Brexit referendum. While many second home and investment buyers are racing to complete before the April stamp duty hike, the uncertainty about Brexit could yet have a chilling effect on demand this year,’ he explained.
‘So while 2016 has got off to a strong start, this breathless rate of price growth is unlikely to last too long. This could yet prove a challenging year, making it all the more crucial for buyers to enter the market with their eyes wide open,’ he added.