RENTERS are being trapped in a “vicious cycle” as rents rise at their fastest pace this year while house price growth continues to slow, experts have warned.
Average UK private rents rose 3.8% in the year to August to £1,400 a month, according to the latest Office for National Statistics (ONS) figures.
That was up from annual growth of 3.7% in July and was the highest rate recorded since December.
Meanwhile, average UK house prices rose by just 1.4% in the year to July to £273,000, down from 1.5% in June and marking the third consecutive month in which annual house price growth has slowed.
Rents rose to an average of £1,459 in England, £846 in Wales and £1,013 in Scotland, while the North East and North West recorded the fastest rental inflation in England at 5.8%.
Property experts said the divergence is making it increasingly difficult for renters to save for a deposit, although they cautioned that slower house price growth does not necessarily mean now is the right time for everyone to buy.
Darryl Dhoffer, Founder at The Mortgage Geezer, said higher rents were making it harder for prospective buyers to save.
He said: “This trend traps prospective buyers in a vicious cycle. Higher rents erode the disposable income needed to save a deposit, making the ladder harder to reach.
“For those with funds in place, subdued price growth and motivated sellers may present a buying window, provided borrowing is affordable.
“Ultimately, the divide is widening, with existing homeowners locking in fixed housing costs and equity, while renters absorb relentless price hikes.”
Supply squeeze
Iain Thompson, Director at Glasgow-based Evolve Finance, said rents were being driven higher by a shortage of available properties.
He said: “Rents outstripping house prices is the direct result of a massive supply squeeze. As landlords exit the market due to punitive tax changes, the pool of available rental properties is shrinking while tenant demand reaches record highs, driving prices up at the fastest pace this year.
“This surge makes climbing the property ladder incredibly difficult. Skyrocketing rents are eating up any spare cash that tenants could otherwise channel into a deposit, locking them into a frustrating cycle where their savings can’t keep pace with the market.”
Thompson said slower house price growth could give buyers more negotiating power, but affordability remained crucial.
Harry Goodliffe, Director at HTG Mortgages, said: “Renting has become the expensive way to wait for house prices to fall.
“Rents up 3.8% while house prices slow at 1.4% means anyone holding off on buying is paying more every month for a market that isn’t getting further away from them.
“There’s one reason rents keep climbing, and it’s supply. Landlords have been taxed and regulated by successive governments, so the tenants they leave behind are fighting over fewer homes.”
Goodliffe said he expected rents to continue outpacing house price growth into next year.
Tony Sanchez, Founder at Bridging Loan Directory, cautioned against drawing too broad a conclusion from the figures.
He said purchase prices and rents were operating under different pressures, with affordability and mortgage rates restraining house prices while constrained supply and higher landlord costs supported rents.
Sanchez added that higher rents did not necessarily translate into greater profits for landlords, pointing to HMRC figures showing allowable property expenses had increased.
He said: “For renters, a larger monthly housing bill can make saving a deposit more difficult. But these figures alone do not prove that the wealth gap is widening: the rent and house price measures cover different periods and tell us little about household incomes, deposits or mortgage payments.
“There is no universal ‘good time’ to buy. Slower price growth may give buyers greater negotiating power, but affordability, the expected ownership period and resilience to higher borrowing costs matter more than one monthly index.”
Moving goalposts
Tracey Dixon, Buy-to-Let Mortgage Specialist and Owner at Cardiff-based Pure Mortgage and Protection, said renters were being squeezed by the very housing costs that could prevent them becoming homeowners.
She said: “One of the most frustrating realities for renters is that they can demonstrate years of paying substantial rent on time, yet rising rents make it harder to save a deposit and they may still struggle to satisfy a lender’s affordability assessment.
“They are effectively being asked to prove they can afford homeownership while the cost of renting keeps moving the goalposts.”
Dixon said too many tenants chasing too few properties was pushing up rents, but cautioned that higher rents did not mean every landlord was making greater profits because mortgage, maintenance and regulatory costs had also risen.
She added that there was no universal “right time” to buy, with deposit size, affordability and personal circumstances more important than headline house price movements.
Matt Coulson, Founder at Heron Financial, said rents and house prices were diverging because they were being driven by different forces.
He said: “Rents are a straight supply-and-demand market: fewer homes to rent and record demand push them up in real time. House prices don’t have that freedom, because they’re capped by what buyers can borrow at today’s rates.
“So the same high rates keeping a lid on prices are doing nothing to hold back rents.
“For anyone trying to get on the ladder, that’s a squeeze from both sides: rising rent eats the savings you need for a deposit, while the mortgage to escape it costs more than it used to.”
Coulson said whether now was a good time to buy depended more on an individual’s deposit and affordable monthly payment than small movements in house prices.
He added: “There is a widening gap between renters and owners, and this is how it forms: those who bought are largely shielded, while those still renting are running to stand still.”
