The Hamptons Letting Index revealed this was also the first time in six months that rental growth had been in the single digits. The firm noted this was a significant change from the 12% annual growth peak recorded in August, and the 10.2% yearly change in December.
Across all English regions outside of London, just two recorded double-digit rental growth in January compared to six areas showing double-digit increases in August.
These were the Midlands, where rental prices rose 10% to £950 per month, and the East of England, with a 13.1% jump to £1,292.
In inner London, average monthly rents increased by 11.4% to £3,067.
Hamptons said the slowdown in rental growth from the peak in August to January was primarily driven by London. According to its data, annual rental growth in the capital more than halved from 17.1% to 8.1%, giving the city the slowest rental growth in two years.
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Rental re-let gains
Hamptons said most of the rental increases in 2022 and 2023 were due to landlords with smaller homes, reflecting the higher demand for cheaper properties amid the cost-of-living crisis. Last year, 83% of one-bed homes were re-let at a higher price compared to 67% of four-bed properties.
However, with the slowdown in rental growth, fewer landlords are achieving a higher rent when re-letting a property. In January, 59% of landlords who re-let a property did so with a rental increase, down from 81% in January 2022 and 79% in January last year.
Landlords in Yorkshire and the Humber were the most likely to obtain a higher rent when re-letting, as seen by 66% of landlords.
Still, the share of landlords getting a higher rent when re-letting was above pre-pandemic levels. Hamptons said this suggested the pressure on rents had not completely disappeared.
Comparatively, between 2015 and 2019, just 49% of landlords were able to get a higher rent when re-letting a property, and rental growth was in line with or below the rate of inflation.
More rental properties on the market
Some 34% more rental properties came to market by the end of January compared to the same period last year. Hamptons said this was likely down to how long it takes to let a property, rather than new rental homes on the market.
It said the rise in rental homes was coming from a “record low base” and there were 43% fewer homes to rent compared to 2019.
Hamptons predicted that stock levels would not return to pre-pandemic numbers “in the foreseeable future”.
In January, there were three first-time buyers to every investor, while in early 2016, this ratio was 1:1.
Aneisha Beveridge, head of research at Hamptons, said: “Last summer looks like it may have been the high watermark for rental growth. Since then, fewer landlords have been putting up the rent. Where they have, in cash terms, monthly increases have tended to be in double rather than triple figures.
“The scale of mortgage rate rises kickstarted two years of record-breaking rental growth. As landlords have rolled off fixed terms, they’ve been partly feeding these higher costs through to tenants in the form of higher rents. But just over two years on from the first Bank of England (BoE) rate hike, higher rents coupled with higher prices more generally have placed an increasingly tight straitjacket around tenants’ finances, curtailing their ability to pay more.
“While the upward pressure on rents seems set to weaken in 2024, particularly since mortgage rates have come down, wider pressures on landlords mean rental growth will remain stubbornly sticky. Reduced returns coupled with the additional time and financial costs stemming from rental reform have squeezed the numbers of new landlords. This looks set to keep rental growth running ahead of inflation this year.”
