Short-term gains may be wiped out by long-term struggles, experts reveal, with a latest look at the rental market in London. The HomeLet Rental Index, which is released monthly and analyses archived rents to paint a general picture of the region, has cautiously begun the year with a glimmer of hope for tenants at last, as monthly rental costs have fallen by -2.2%.

Although the current downward trend in rental prices will go some way towards mitigating defaults, the wider context is that rental prices soared by +5.98% in the last year alone in London and have increased as much as 21.4% since 2021 – the equivalent of more than £375 extra per month.

As of January 2024, HomeLet, the UK’s largest tenant referencing and specialist lettings insurance company, predicts tenants in London are now forking out just under 40% of their monthly wages on rental costs, a +3.2% increase since last year alone.

Commenting on the latest data, Andy Halstead, HomeLet & Let Alliance Chief Executive Officer has mixed feelings, saying: “The New Year starts with restrained optimism from us, as our records show a minor decrease in monthly costs in London.

“In fact, rental prices have fallen in all regions across the UK with the exception of the East Midlands. Even in the capital, where tenants now pay an average of £2127pcm, rents have dropped by almost £50 per month since our November data was released.

“But, although these figures can be viewed as a short-term win for tenants, let’s not kid ourselves that this represents anything resembling a breakthrough. We can safely say that 2023 was a year that most landlords and tenants will want to forget. Monthly rents increased by 8% in the UK in the matter of a year, and have soared nearly 20% since 2021.

“So, whilst we are cautiously optimistic that things can improve for the UK rental sector, it’s too early to talk about an upturn in fortunes just yet. Of course, marginally lower rents put slightly more money in tenants’ pockets and partially reduce the likelihood of defaults, but the broader landscape is still incredibly challenging for all parties – with little sign of easing.

“Unless we see some dramatic changes, 2024 looks set to bring more of the same. Landlords will have to do battle with a familiar array of struggles, including a lack of stock, rising costs and prohibitively expensive buy-to-let mortgage rates.

“For those reasons, combined with lingering high inflation and the country’s financial crises, it’s unlikely we’ll ever see rental prices drop to the rates they were at when we were exiting the Covid-19 pandemic. The impact of that, alongside questionable budget decisions and overall weak management of British finances, means that we estimate by this time in 2025, rent increases of between 5% – 10% won’t be surprising.

“Nevertheless, to see a small decrease in rental prices across the country this month has been a pleasant surprise. For the sake of the UK’s renters, we hope that this trend continues into 2024. Similarly, we hope that mortgage rates will continue to fall and that landlords who are entering the market or are looking to renew their mortgage agreements can benefit from more affordable rates should the predicted interest rate cuts happen. We shall wait and see.”

The full breakdown of rent increases, variances and rent-to-income ratios can be found on the HomeLet website. The HomeLet Rental Index provides the most comprehensive and up-to-date data on rental values in the UK. The trends reported within the HomeLet Rental Index are from data on actual achieved rental values for just-agreed tenancies arranged in the most recent period – providing an in-depth insight into the lettings market and what’s happening right now across the UK.