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Rising rent prices increase the cost of extra space for UK tenants

An estate agents sign for a house to rent
According to the Hamptons monthly letting index for July, Brits are losing out on an extra bedroom for the same rental prices they were paying in 2020. Photo: Phil Noble/Reuters (Phil Noble / Reuters)

Rising rent prices across Britain are seeing tenants losing out on extra space for the same amount of money, new data has shown.

According to the Hamptons monthly letting index for July, Brits are losing out on an extra bedroom for the same rental prices they were paying in 2020.

The average two-bed property now costs what the average three-bed cost just 16 months ago at £1,068 per calendar month (pcm). The average one-bed (£929 pcm) now costs what the average two-bed cost two years ago.

Strong rental growth has meant that tenants’ budgets do not stretch as far as they used to. This means that tenants are having to trade down and lose a bedroom in order to spend the same amount of money on rent as they did in 2020.

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Before this, it took six years for average rents to rise by an amount equivalent to the cost of a bedroom, the research showed.

Read more: UK house prices climb to record £294,845 as market shows no signs of cooling

Rents in the UK rose by an average of 8.3% over the last 12 months, the third consecutive month of rental growth cooling, but still the sixth strongest annual increase over the last decade.

This means that rents are 15.7% above where they were when COVID-19 struck.

The two years between July 2020 and July 2022 marked the largest erosion of tenants’ buying power over any period since the launch of the Hamptons lettings index in 2013. Average rents during this time frame rose by 16.2% or £165 a month.

Tenants in the South West have seen what they get for their money fall faster than anywhere else in the country.

Spending power in this region eroded by the equivalent of a bedroom over just 16 months due to rents rising by 18.7% or £169 pcm. Scotland followed over 17 months and the North West over 19 months.

Watch: How to save money on a low income

At the other end of the scale, it took an average of 30 months for Welsh tenants to see their money shrink by the equivalent of a bedroom.

Inner London recorded faster rental growth than anywhere else in the country by a significant margin. Rents climbed 33.6% compared to the same time last year.

Hamptons said: “This rapid rate of growth reflects the post-COVID trough it’s being compared against. This will work its way through in a couple of months, likely bringing down the year-on-year figure significantly. As such, it leaves average rents only 1.5% above where they were in January 2020 and still on par with July 2016.”

“After two years of record rental growth, tenants aren’t seeing their budgets stretch as far as they used to. And they are likely to be squeezed further still by a mix of investors leaving the market and the landlords left behind looking to pass on their higher mortgage costs,” Aneisha Beveridge, head of research at Hamptons, said.

Read more: FTSE 100: Persimmon boosted by rising house prices as inflation eats into earnings

“Tenants trying to move are increasingly facing a cost-cliff with market rents rising faster than what they’ve been paying for their current homes. Often this means they face compromising on what and where they rent next, with some having to trade down.”

She added: “There are some signs that the rental stock slump is close to bottoming out. But with two-thirds fewer homes on the market than five years ago, there isn’t room for them to fall much further.

“In a reversal of last year, it’s city centre markets which have seen the biggest year-on-year falls in the number of homes up for rent, meaning it’s here that tenants are still facing double-digit rental growth. Meanwhile suburban and country markets have quietly recorded small rises in stock levels and have seen rental growth soften.”

Watch: Will UK house prices ever fall?