Rent continues to increase but growth starting to slow, index finds

Rent continues to increase but its growth is starting to slow, an index has found, indicating the private rental sector may be heading towards an "affordability ceiling".

A report from private rented sector insurance provider HomeLet shows rents across the UK rose by an annual average of 3% in October from the same period last year.

A tenant signing up for a new tenancy during October paid an average monthly rent of £902, up from October 2015's average of £875.

This makes it the fourth consecutive month of slowing or no growth in the rate of annual growth in the UK rental sector, HomeLet said.

Martin Totty, HomeLet's chief executive, said: "Landlords are aware of the need to find a balance between what tenants can afford and the returns they require on their investment. While many landlords are facing higher costs themselves, including the impact of higher stamp duty on their property purchases since April, our data suggests that they have so far been cautious against a more uncertain economic environment.

"We know wage growth has lagged behind rental price inflation and it could be that we are approaching an affordability ceiling whereby landlords can't attract tenants able to afford higher rents."

He added that the average tenancy duration had increased to 28 months, which "might suggest landlords are valuing the security of a reliable tenant and accommodating their wish to remain in the property for longer".

As recently as March this year, rents were rising at an average annual rate of 4.5%.

The slow in pace of rental price inflation is most prominent in London and the South East, where rents were previously rising most quickly, the insurance provider said.

In Greater London, rents on new tenancies rose by 2.5% over the year to October, having been increasing at a rate of more than 7% a year ago. In the broader South East, rents went up by 2.7% over the year to October, down from above 4.3% for the same period in 2014-2015.

Scotland was the only area where the average rent fell, from £608 in October 2015 to £606 last month.

According to Nationwide Building Society, house prices are now more expensive relative to people's incomes than at any time since 2008, HomeLet said.

It warned that 2017 could see a renewed inflation of rental prices as supply for rental properties continues to exceed demand.