The rising cost of living has been one of the biggest challenges for Brits during the recession, with the prices of everyday necessities such as food and fuel jumping. New research has shown that the cost of renting has also risen sharply over the past year – particularly for those living in Greater London.
Research from LSL Property Services found that rent in London showed by far the highest level of growth when compared to the rest of the country. Over the past year, rents in London have jumped by 6.2 per cent, which equates to £64.
While only one region saw a fall on an annual basis, with the average rent in the south west being 1.2 per cent less than there were a year ago. The second biggest increase was seen in the south east, which experienced a rise of 3.3 per cent.
Month-on-month, rents dropped by 0.1 per cent nationwide in February, but annual growth accelerated to 3.3 per cent.
David Newnes, director of LSL Property Services, owners of estate agents Reeds Rains and Your Move, comments:
“The rental market hasn’t yet burst into life, but we’re seeing more vitality than last year’s timid February market, when tenant demand was impacted by the rush to buy homes before the stamp duty deadline.
“However, this February has also seen a more vibrant sales market reduce the strain on the private rented sector during its sluggish off‐peak season. While a modest increase in supply has had an effect too, in the longer‐term, the supply of rental homes will have to increase considerably to prevent monthly rent rises when the rental market re‐enters its traditional peak season.”
There has recently been much consternation over the idea that today’s generation of young people will never be able to invest in their own properties – a concept that has seen them labelled ‘generation rent’ by the media. There is no doubt that sky high renting costs contribute to this issue. After all, if young people are struggling to pay their current rent, how are they ever going to save for a deposit?
Indeed, figures from Rightmove suggest that renters must now give up half of their take home pay to afford rent. This is up 13.6 per cent from 2009. Over the same time, the rate of take home pay has increase by just 5.4 per cent. When this is added to the rising cost of living, it seems near impossible for first time buyers to save for a new home – especially those without any help.
Of those that do manage to secure a mortgage, 72 per cent have to turn to ‘the bank of Mum and Dad’, relying on their parents to supplement the deposit.
Another issue is the lack of affordable housing for first time buyers. Indeed, between the years 1997 and 2011 there was an estimated rise of eight per cent in the population of London. However, the supply of affordable housing has risen by just four per cent over the same time period.
The Council of Mortgage Lenders has stated that high property prices in London are preventing young people from getting on the property ladder at all. The average house price across the UK stands at around £163,000. However, in London this shoots up to a massive £364,000. This is no doubt one of the contributing factors to the difference in age in first time buyers. The average age of an individual buying their first house outside the capital is 29, while in London it is significantly higher, at 43.
Indeed, statistics from 2011 showed that just 193,000 first time buyers had got their foot on the property ladder. This compared to 570,000 in 2001.
On the other hand landlords are able to expand their portfolios thanks to these high rental returns, using the funds generated to put down the deposit on further properties. Thanks to this extra income they are able to pay off the all time low mortgages, thereby pushing up house prices on the lower end of the market, that first time buyers would likely be interested in.
It’s not all bad news for renters, however, as research from LSL Property Services found that nationwide, rental costs were down 0.3 per cent in January. However, they were still significantly higher than a year ago.
While the average rent dropped by 0.3 per cent month-on-month, being at its lowest since July last year, it is still 2.8 per cent higher than it was in January 2012, according to the survey.
However, the results were very much regional with the sharpest monthly fall in the cost of renting being seen in the south-east of England. Meanwhile, there was a rise of 1.2 per cent in the East Midlands.
What’s more, LSL predicts that England and Wales will see rises in the coming months.
David Newnes, director at the organisation, commented: “An improving mortgage market in January helped take a little pressure off the limited supply of rental property, at a time when the demand from tenants on the move is far from its seasonal peaks.
“But the dip in competition is not likely to last long.”