Our position as the largest provider of deposit protection in the UK gives us a unique insight into trends in the Private Rented Sector (PRS). This is why we’re delighted to announce the launch of The DPS Rent Index. We’ve worked with leading economists, Professor Joe Nellis and Professor Catarina Figueira, to develop the Index, which has the capacity to inform the rental housing market and shape both public policy and investor decision-making, in the same way that house price indices do for the owner-occupied housing market.
We wanted to create a rent index that stands up to scrutiny and the highest standards of analysis, so we turned to experts with prior experience of creating complex statistical models that illuminate a market. Professors Joe Nellis and Catarina Figueira are leaders in their area and this provides the assurance we believe an index of this stature and importance requires. Indeed, Joe was co-developer of the Halifax and Nationwide House Price Indices.
We've created The DPS Rent Index using a unique database drawn from 10 years of deposit protection in England and Wales, plus data from our sister schemes, LPS Scotland, and LPS Northern Ireland. The database is the largest of its kind, which makes it the most reliable indicator of rental trends.
So what do the latest figures actually show?
Over the last 10 years, there has been a continuing trend of rents increasing across the UK year on year, despite the global financial crisis (GFC). This saw London’s 3.47% compound annual growth rate (CAGR) representing the biggest regional increase and the 1.12% CAGR experienced in the North East as the smallest.
The average UK rent in the third quarter of 2017 was £775.13, which is £157.69 (25.5%) higher than it was a decade ago, and now represents a third (32.59%) of median monthly salary. Throughout this period, the PRS has continued to grow and is forecast to represent 25% of all UK housing stock by 2020.
The Brexit Factor
However, there are indications that rent growth has slowed since the Brexit vote, with average UK rent only increasing by 1.51% annually (comparing Q3 2017 to Q3 2016), significantly slower than the previous three years and lower than average CAGR for the last decade (2.30%). Average rent also increased at a slower rate than inflation, which was 2.7% for the same period and, for the first time since the GFC, the average UK monthly wage grew faster than rent.
What else has played a part?
A ban on landlords and letting agents being able to charge fees to tenants for renting a property has been proposed and is expected to come in to force by the end of 2018. This has led to widespread industry speculation over whether this will increase rents as landlords look to recoup costs. As a result of The DPS Rent Index, we will now have a clear indication of how rents change over time in every part of the UK, allowing for a better informed view on how the PRS is affected by such changes – and how other economic factors relate to the cost of renting across the country.
Julian Foster, Managing Director here at The DPS, said: “Figures suggest that the rental market has slowed nationally since the third quarter of 2016, and letting agents, landlords and tenants will be keen to see whether this trend continues over the next year.
“This post-Brexit increase is the smallest witnessed since 2012 and comes after three years of particularly high growth, suggesting the influence of other macroeconomic factors such as housing, employment and inflation.
While we're still some distance from seeing the roughly 3% fall that came with the last GFC, the change over the last year identified by the index represents a significant shift for the market.”
You can read the full report here. Watch this space for further updates.