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UK Rental Prices Hit Record Highs as Property Market Faces Continued Mortgage Rate Impact

Rental costs in the UK have surged to all-time highs, while housing price growth has tapered due to elevated mortgage rates, according to recent official data released on Wednesday.

In the 12 months leading to June, tenant payments for private rentals escalated by an unprecedented 5.1 percent, marking the largest annual change since January 2016, as confirmed by the Office for National Statistics.

Notably, London outpaced the national average with an annual 5.3 percent surge in private rental prices during the same period, reaching its highest rate since September 2012.

Housing market analyst Neal Hudson attributed the rental price hike to global factors rather than a uniquely British phenomenon. The post-pandemic rebound in demand coupled with rising interest rates, impacting landlords’ mortgage expenses, has mirrored similar price spikes in the US, Canada, and Ireland.

In the UK, however, longer tenancies and a scarcity of rental properties due to landlords selling or resorting to short-term lettings have exacerbated the issue. Hudson noted that the duration of this situation has exceeded initial expectations.

Recent surveys have highlighted an upswing in rental demand as rising mortgage rates curtail the ability of many to buy homes.

In contrast, data from the Office for National Statistics revealed that average UK house prices experienced a 0.4 percent dip on a seasonally adjusted basis between April and May. This brought the annual growth rate down to 1.9 percent, from a revised 3.2 percent the previous month.

The most sluggish growth has been observed in London, where prices are highest and buyers more indebted.

Gabriella Dickens, an economist at consultancy firm Pantheon Macroeconomics, noted that the drop in May still left average prices significantly elevated, standing 24.6 percent above 2019 levels.

Hudson observed a trend of individuals opting for smaller properties while undertaking longer mortgage terms with larger proportions of their income allocated to payments. This has led to a housing market that’s worse off than the previous year, where new buyers strain themselves to attain homes that are often smaller, distant, and less suitable.