Monday 13 June 2016

Monthly Lettings Index - May 2016

Rent accounts for the biggest chunk of Londoner’s incomes since 2007

  • The average cost of renting a one-bedroom home in Great Britain is £746 per month, which accounts for 48% of the average post-tax income of a young full-time worker - up just three percentage points from 45% in 2007. (see table 1)
  • Across most parts of Great Britain renting relative to incomes is more affordable than 2007. (see table 1
  • In contrast, the average cost of renting a one-bedroom home in London is £1,133 per month, which takes up almost two thirds (57%) of the average under 30’s post-tax income, up from 41% in 2007. (see table 1)
  • Two young full-time workers splitting the rent of a two-bedroom home would on average spend 35% of their post-tax income on rent in London and 27% in Great Britain. (see chart 1)
  • Average rents in the UK rose to £945 in May, a 2% year-on-year increase. (see table 2)

The May Countrywide Lettings Index shows the average cost of renting a one-bedroom home in Great Britain accounts for 48% of the post-tax income of an average young full-time worker.  This compares to 45% in 2007.  Rents have increased 27% since 2007 outpacing a 16% growth in incomes. 

In most parts of the country, the proportion of income taken up by rent is less now than it was in 2007.  In the North East, the cost of a one-bedroom home accounts for 35% of the post-tax income of an average full-time worker under 30, much lower than the 42% in 2007.  Tenants in the North East have benefitted from the highest regional income growth since 2007 (32%), in addition to rents being only 11% higher than they were in 2007.

It’s a very different story in the capital however.  The cost of renting a one-bed home in London now takes up 57% of the post-tax income of an average full-time worker aged under 30.  This is a 16% increase on the 41% of income in 2007.  Rents have risen by 48% since 2007 more than four times as fast as the 11% increase in incomes and this has put tenants in London under increasing affordability pressure.

As affordability pressures have increased in some regions, tenants have opted to reduce the burden by sharing.  Since 2007, the proportion of one-person households in the private rented sector has decreased by 3%, while four and five people households have grown by 2% & 1% respectively. Similarly, the proportion of homes with a spare room in the sector has fallen by 3% in the same period, suggesting that for many a spare room has become an unaffordable luxury. 

Overall, average rents in the UK rose to £945 in May, 2% higher than they were last year.  The pace of growth remains low compared to last year, when rents were growing at a rate of 5.5%.  Scotland and the North saw the highest year-on-year increase in rent, 12% and 4% respectively.          

Commenting on the findings, Johnny Morris, Research Director at Countrywide, said:

“In most parts of Great Britain, rising incomes have softened the impact of increasing rents.  For more than half of the country, rents now take up less of the average person’s take-home pay than before the downturn in 2007.

“But in London rents have risen much faster than wages, stretching affordability.  Many tenants have adapted to rising prices by either moving to cheaper areas, further from the centre, or sharing.  Stalling rental growth in the capital begs the question whether London’s rents have reached their affordability limits for now”.

About the Countrywide Lettings Index and new methodology

The Countrywide Lettings Index has been running since 2012 and we continually seek to improve its accuracy.  From June 2017 the methodology was changed to reduce the impact of seasonality and volatility in the rental market. 

While the index remains a mix adjusted series, rent and rental growth figures for each month are now based on a three month rolling average rather than lets agreed in the last month.  The most expensive decile of homes let has been excluded to reduce volatility and the mix has been updated to include the most recently published government stock statistics.

The Countrywide Lettings Index uses data from Great Britain's largest letting agent to track changes to the cost of renting.  The index is based on the 90,000 homes let and managed by Countrywide in each year, adjusting for their location and type.  It is based on achieved rather than advertised rents and the published monthly rental figures are an average of the new lets and renewals of tenancies over a rolling three month period.