The growth of the private rented sector (PRS) in the last year was driven by people under 45, as higher interest rates make it harder for them to buy a home, insight from an estate agency group found.
The Hamptons Monthly Lettings Index suggested that government-backed homeownership schemes such as Help to Buy and low interest rates resulted in a 1% fall in renting households under the age of 45 over a decade, dropping from 3.45 million to 3.43 million, despite growth in this population.
Over this period, renters older than 45 who did not buy a home in their 20s or 30s drove the growth of the PRS, with a 24% increase in the number of renters aged 45 and older from 1.43 million to 1.77 million.
However, this trend has been reversed by higher interest rates, which have slowed down homeownership rates among younger people.
Between 2022/23 and 2023/24, Hamptons said the growth in the PRS was “wholly driven” by the under-45s, growing by 149,000 to a total of 3.4 million.
Hamptons said this equated to around 40% of the people who had used the Help to Buy scheme over the last decade.
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Renters saving for longer
Aneisha Beveridge, head of research at Hamptons, said: “Higher mortgage rates have clipped the wings of many young aspiring homeowners in the last couple of years, meaning millennials increasingly outnumber older generations in the rental market. Renters face saving for longer and earning more to borrow similar amounts of money to buy a home. Just like rapidly rising house prices, higher interest rates will keep younger generations of tenants renting for longer.
“For most of the last decade, the government’s flagship Help to Buy scheme played an important role in transferring tenants from the rental market into homeownership. However, the record rise in the number of younger renters over the last year highlights the impact of higher mortgage rates and the need for a similar scheme if the government wants to achieve its ambition to help more people become homeowners.”
A larger rental bill
This growth added £3.5bn to the amount of rent paid by this demographic in the last year, and in total, the rental bill for the under-45s in 2024 was £56.2bn.
Under-45s now pay two-thirds of all rent in Great Britain, up from 64% in 2023.
In the last 10 years, the total rent paid by the under-45s increased by 59%, which Hamptons said reflected higher rents rather than a larger number of younger renters.
Despite this rise in rent, the amount collectively paid by the over-45s decreased by £716m annually. This was attributed to a decline in older renters, which fell by 79,000. Hamptons said this age group typically had larger savings and were more able to purchase a home even with higher interest rates.
However, over the decade, the amount of rent paid by the over-45s nearly doubled from £14.7bn to £29.1bn. Hamptons said some renters chose to rent, while others had been locked out of homeownership due to stricter stress testing after the 2008 financial crisis.
Record rental payments in 2024
By the end of last year, the total rent paid by tenants in Great Britain rose to a record £85.2bn, £2.8bn higher than in 2023.
It said slower rental growth and a limited rise in the number of tenants kept this increase “modest” when compared to recent years, which was the smallest rise in four years.
Some 60% of this increase in the rent paid was from higher rents, while two-fifths of this was a result of the higher number of renters.
Slower rental growth
Average rents on newly let properties rose by just 2% annually in December last year to £1,367, which was the smallest increase since October 2020, when rents fell during the pandemic.
However, rents rose from an already high base, as there was a 10.2% year-on-year increase recorded in December 2023.
Since October 2020, average rents have increased by 31.2% from £1,042 per month. This means the average tenant has paid an extra £3,912 in rent each year since then.
Rents rose the fastest in Scotland, where a 5.5% annual increase was recorded, putting the monthly payment at £957 on average. This was followed by the Midlands and the North of England, with respective increases of 5.2% and 4.8%, averaging £994 and £933.
Average rents in Greater London fell by 0.2% year-on-year, the only region to record a fall. However, Hamptons said this was partially due to rents rising at a double-digit pace in December 2023, when growth was at 11.4%.
There were also 10% more rental homes on the market last year than in 2023, but Hamptons said there were “strong signs” that the recovery in stock levels had peaked, as numbers were 34% higher annually in January 2024.
The number of homes on the market was still down on 2019, with a 13% decrease.
Hamptons said this figure had trended downward in recent months and would put pressure on rental growth this year.
Beveridge added: “The pace of rental growth continues to cool, and rents are now rising at a similar rate to house prices. And just like house prices, the bulk of the growth is coming in Northern England. But the recovery in stock levels looks to have peaked, keeping rental growth positive.
“While new purchases by landlords held up in December, early signs in January suggest the new 5% stamp duty surcharge is starting to bite, which could fuel more rental growth in the coming months.”
