How are high mortgage rates affecting renters?
Slowing house prices and a sharp rise in mortgage rates over the last 13 months have caused upheaval in the property market - and it's not just homeowners who are feeling the strain.
Issues have trickled down to tenants who rent their homes, as landlords look to recoup higher costs by increasing rents, or selling up altogether. As a result, demand is outstripping supply in many areas.
According to campaign group Generation Rent, 50% of private renters it surveyed said they had been asked to pay a higher rent in the previous 12 months.
Here, Which? explains challenges in today's rental market, and what steps you can take if you’re struggling to keep up with the costs.
Are rents increasing?
According to the latest data from Hamptons, average rents are up 8.3% compared to the same time last year.
Some areas of the country saw higher increases than others; the Midlands has seen the biggest increase, where average rents rose by 11.2%, closely followed by 11% in the North of England.
The table below shows rental growth on newly let properties:
| Region | January 2023 | January 2022 | Year-on-year increase % | Year-on-year increase £ |
|---|---|---|---|---|
| Greater London | £2,1421 | £1,962 | 9.1% | £179 |
| Inner London | £2,753 | £2,546 | 8.1% | £207 |
| Outer London | £2,027 | £1,851 | 9.5% | £176 |
| East of England | £1,143 | £1,097 | 4.1% | £46 |
| South East | £1,306 | £1,226 | 6.5% | £80 |
| South West | £1,097 | £1,020 | 7.5% | £77 |
| Midlands | £864 | £777 | 11.2% | £87 |
Source: Hamptons
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What's causing the rent increases?
Here are some of the main factors that are contributing to an increase in rental prices.
Buy-to-let mortgages remain high
When landlords buy a property as an investment, they have to fund their purchase with a specialist buy-to-let mortgage.
The vast majority of these are provided on an interest-only basis, which means for each month of the mortgage term, only interest on the loan is paid, and none of the capital.
In just under a year we’ve seen the average buy-to-let rates increase from 3.2% in March 2022, to 5.91% in February this year, according to Moneyfacts.
This means landlords will be a hit with higher costs when they come to remortgage, and may pass on these costs to their tenants.
- Find out more: what's happening to buy-to-let mortgage rates?
Surge in demand
Rental properties have become hugely sought after, following thousands of people moving back to cities when universities and offices opened back up in late 2021 and 2022 after the coronavirus pandemic.
Dan Wilson Craw, deputy director at Generation Rent, said this created an 'unprecedented surge in demand'.
He said: 'Some landlords have responded by asking existing tenants for higher rents – in November 2022, 50% of private renters told us they had been asked to pay a higher rent in the previous 12 months.
'Landlords were more likely to blame higher market rents than interest rates. Rental listings have increased since their lowest point in autumn 2022, but competition for rentals is still fierce.'
Lack of available properties
According to Hamptons, there are currently more rental homes coming onto the market than this time last year - but supply is still low compared to historic figures.
Across England, Scotland and Wales there were 19% more homes available to rent last month compared to January 2022. However, compared to 2019, there are 57% fewer homes available for tenants.
Hamptons said this is one of the reasons why rents are still rising by around 8%.
- Find out more: what's happening to house prices
Tax perks scrapped
Landlords are no longer able to deduct any mortgage expenses from their rental income to reduce their tax bill - instead they can receive tax relief payments based on the amount of mortgage interest they pay.
The relief is paid as a tax credit, based on 20% of your mortgage interest payments.
This is less generous than the old system for higher-rate taxpayers, who effectively received 40% tax relief on mortgage payments.
We may also see more landlords sell up due to capital gains tax changes coming into force later this year.
Currently, sellers can earn a profit of £12,300 on an asset before having to pay capital gains tax, but this threshold will more than halve to £6,000 from April 2023, and £3,000 from April 2024.
- Find out more: mortgage interest tax relief explained
New renting requirements
The government is planning to introduce new rules requiring all new tenancies to have an Energy Performance Certificate (EPC) rating of C by 2025, with existing tenancies following suit by 2028.
The new legislation is also set to increase the capped amount landlords will be required to invest to achieve improved ratings, from £3,500 to £5,000.
More than half of homes will require upgrades to meet the band C rating, and some landlords may struggle to cover the costs. This means they could choose to sell up before.
- Find out more: 11 things landlords need to know in 2023
Cost of living crisis
The rising cost of living has been an increasingly serious issue affecting people across the UK since early 2021.
The annual rate of inflation peaked at 11.1% in October - a 41-year high, before easing to 10.1% in January.
High inflation affects the affordability of goods and services for households, and can be seen in everything from more expensive groceries to rising household bills.
This is bad news for those whose rent includes bills, as all these added costs will probably be passed onto you.
- Find out more: cost of living help and advice
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What to do if you're struggling with rent prices
According to the latest findings from the Which? Consumer Insight Tracker, an estimated 2.3 million households missed or defaulted on at least one mortgage, rent, loan, credit card or bill in January 2023.
Here is some advice if you are struggling to afford your rent.
Know your rights
Your landlord isn’t allowed to increase your rent during the term covered by the fixed tenancy agreement unless you agree to it.
If you go onto a rolling contract, landlords cannot normally increase the rent more than once a year without your agreement. But when you come to renew your tenancy agreement, your landlord may try to increase your rent.
In Scotland, landlords can only increase rent once a year and must give three months' written notice before it happens. The only exception is if there's a clause in the tenancy agreement stating your rent can be increased.
If you disagree with the proposed rent increase, the first step is to talk to your landlord. You could ask them to explain why they're asking for more money, and try to negotiate on the amount.
Dan from Generation Rent added: 'If your landlord sells up and they want you to move out, they should issue a Section 21 notice, which can be challenged if they have failed certain requirements - such as protecting your deposit or providing a valid gas safety certificate.
'You could also encourage them to sell the property with you in situ – or even ask if they would sell the property to you, if you have a deposit saved.'
- Find out more: what are my rights when renting from a private landlord?
Do your research
If you do negotiate with your landlord over the rent prices, do your research first.
For example, find out how much rent is being charged for similar-sized properties in the neighbourhood.
If you think your rent is excessive compared to similar properties in your area, you can apply to a tribunal. The processes for this vary between England, Wales, Scotland and Northern Ireland.
- Find out more: how to complain about your landlord
Ask your landlord or letting agent for help
Your landlord isn’t obliged to offer support, but they may be willing to discuss a compromise that will enable you to keep living in the property. This could involve reducing your monthly payments for a set period.
Before calling, consider putting a budget together that outlines your income and existing financial commitments.
- Find out more: what to do if you can't afford your rent
Get free advice
If you're concerned about rent payments or the prospect of eviction, it can be helpful to get independent expert advice on your options. Specialist housing charities offer free support. These include:
If you're at risk of becoming homeless due to eviction, you can contact your local council's housing department for advice on applying for emergency accommodation.
You can also get more general advice on debt and budgeting from these charities:
Be alert for scammers
The current environment has created the perfect opportunity for scammers who have been targeting renters looking for a new place to live.
Action Fraud received more than 6,000 reports of online rental scams in the year to December 2022, with victims losing more than £10m.
Which? found several examples of rental scams circulating on both SpareRoom and Facebook during our investigation.
- Find out more: renters targeted by scammers on social media