London’s rental crisis – Where could Londoners move to save on rent?

The boss of London’s biggest estate agent Foxtons warned that the lack of rental options in the capital is so dramatic that people will need to move further out. Zoopla reported last week that 4,000 privately rented homes in London are being put up for sale a month as landlords feel the squeeze on cashflow. Londoners are already facing high prices, bidding wars for homes and, in some instances, are being asked to pay rent upfront. All this is because more tenants are looking for homes available in the capital.

Why is London’s rental sector in crisis?

London reported the second highest rental inflation compared to any other city in the UK. Rental inflation in London, as highlighted below, stood at 13.5% from April 2022 to April 2023, the highest ever on record.

Apart from interest rate increases and excessive government legislation forcing landlords out of the market. Hamptons Estate Agency also estimates that about 140,000 people who bought their buy-to-let properties in the 1990s sold them last year to fund their retirement, and new landlords were not filling the gaps left behind, as the sector has become unattractive for investors due to excessive legislation and scrapping of the mortgage interest relief.

The National Residential Landlord Association (NRLA) stated in response to the Bank of England (BOE) raising its base rate from 4.5% to 5%, warning that hundreds of thousands of rental properties across London and the UK could be lost. The NRLA worries that increasing interest rates could exacerbate the ongoing supply and demand crisis across the private rented sector.

As the graph below highlights, a huge mismatch exists between supply and demand in London and across the UK. The demand for rental properties across London was up by 40% and supply down by 26%, meaning that demand was higher than the ever-shrinking supply, as reported by Zoopla. This will cause many problems for renters in the capital as they will be forced to look elsewhere due to a lack of affordable options. 

Where could Londoners move to save rent?

Inner commuter belt areas offer the highest savings for exiting tenants compared to the cost of renting in Greater London. We look at regions most financially viable for exiting tenants when the rising cost of living is in the commuter belt rather than the capital.

Thurrock, in Essex, was the cheapest of London’s neighbours, with an average rent of £993 per month, which is £679 below the £1,672 Greater London average rent. Add to the cost of a monthly season ticket of £273, and someone moving out of Greater London would still save £400.

Slough, in Berkshire, is the second most affordable location in the inner commuter belt, offering a saving of £628 a month, and after accounting for a season ticket moving to Slough would save you £326 per month compared to Greater London. Welwyn Hatfield, Broxbourne, and Dartford make up the rest of the top five best commuter swaps and offer significant savings, as highlighted above.

Sevenoaks in Kent is the most expensive place to rent around the capital averaging at £1,596 per month, this is only a saving of £76 when compared to the Greater London average, and add in the costs of a season ticket, it will likely cost you more to rent in Sevenoaks compared to Greater London. All other areas bordering the capital show an average monthly rental saving of £150 plus. Elmbridge in Surrey, Hertsmere and Three Rivers in Hertfordshire and Epping Forest in Essex are the next costliest places to rent in the inner commuter belt areas, as highlighted above.

The current rental market is facing a challenge where many renters are competing for a limited number of properties. As a result, the rent prices are increasing due to the supply and demand gap.

Unfortunately, the situation is expected to worsen in the coming years. According to a recent survey by BVA-BDRC, 33% of private landlords in England and Wales plan to decrease the number of properties they rent by Q1 of 2023. This is the highest number ever recorded by the consultancy firm, which has increased from its previous figure of 20%. Conversely, only 10% of landlords stated that they plan to increase the number of properties they rent.

The lack of supply within London will likely impact inner commuter belt areas, as rents will continue to rise due to lack of supply and increased mortgage costs. Those looking to move should try and secure a deal now, as rental inflation will continue to rise over the next few years.