UK rents might be approaching an 'affordability ceiling' after years of rising faster than wages

Landlords face higher costs, but may not be able to raise rents in response because of affordability issues.

Rents rose by 3% on average across Great Britain over the year up to October 2016, according to HomeLet, well ahead of pay. The index said the country's average rent was £902. Figures from the Office for National Statistics (ONS) showed pay increased by 2.3% during the same period.

"We know wage growth has lagged 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," said Martin Totty, HomeLet's chief executive.

Landlords have been targeted with a number of tax hikes. There is now a 3% surcharge on stamp duty for purchases of additional properties, and from April 2017, tax reliefs on their maintenance and mortgage interest costs will be cut back.

"Landlords are aware of the need to find a balance between what tenants can afford and the returns they require on their investment," said Totty.

"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."

A separate report by Countrywide said "affordability pressures" meant fewer renters could take on homes with spare bedrooms. The property firm's lettings index for October said 35% of new tenants in 2016 rented a home with a spare bedroom, well down from 59% in 2010.

London saw the biggest regional fall, down from 61% to 26%. An ongoing shortage of rental housing, with housebuilding running at around half the level needed to meet demand, has driven up rents.

"As affordability pressures have risen, for many tenants, extra space has become a luxury," said Johnny Morris, director of research at Countrywide.

"Sacrificing extra bedrooms and sharing has helped renters to absorb higher prices. But those living in the South are close to a point where there's not much more room to squeeze, meaning rental growth is likely to be capped by tenants incomes for some time."

Countrywide said the average rent on new tenancies rose 1% in Great Britain to £947. On renewed tenancies, the average rent lifted by 4.8% to £888.

Region	Average rent in October 2016	Average rent in September 2016	Average rent in October 2015	Monthly variation	Annual variation
West Midlands	£663	£665	£631	-0.3%	5.1%
North West	£676	£683	£648	-1.0%	4.4%
Wales	£609	£609	£586	0.1%	3.9%
East of England	£904	£904	£871	0.0%	3.7%
Northern Ireland	£592	£594	£573	-0.4%	3.3%
East Midlands	£601	£602	£583	-0.2%	3.1%
South East	£999	£1,020	£973	-2.1%	2.7%
Greater London	£1,542	£1,555	£1,504	-0.9%	2.5%
Yorkshire & Humberside	£619	£621	£605	-0.3%	2.3%
South West	£787	£799	£772	-1.5%	1.9%
North East	£525	£530	£519	-0.9%	1.3%
Scotland	£606	£610	£608	-0.8%	-0.4%
UK	£902	£910	£875	-0.9%	3.0%
Notes:	Based on new tenancies in October 2016	Based on new tenancies in September 2016	Based on new tenancies in October 2015	Comparison of average rent in October 2016 and September 2016	Comparison of average rent in October 2016 and October 2015