The longstanding disparity between rental prices in the North and South of England has reached its narrowest point in over a decade, according to our latest monthly Lettings Index.
As of August 2024, the average rent in the South of England was 37% higher than in the North, equating to a difference of £357 per calendar month (pcm). This gap has contracted from 43% in August 2023 and a peak of 55% in November 2021.
The North-South divide has also fallen in cash terms. Last month, the average rental home in the North cost £357 pcm more than one in the South, down from £378 pcm in August 2023.
Much like house prices, the rental North-South divide has been closing for the last five years. The narrowing reflects the cyclical nature of the housing market with house prices in the North of England rising 31%, nearly double the Southern rate. These figures have been mirrored in the rental market, with rents in the North of England quickly playing catch up.
But it's only been in the last year that the gap has really started to narrow beyond the point we’ve previously seen. This has been driven by the slowing of rental growth across Southern England, which has been caused by greater affordability pressures.
Divergent Growth Patterns
Last month, rental growth across Great Britain stood at 5.0%, the lowest rate since April 2021 and down from a peak of 12.0% in August last year. While the South has experienced a cooling in rental growth from 8.7% to 5.0% over the past year, the North continues to see near double-digit increases, with rents rising by 9.6% year-on-year, maintaining a similar pace to the previous year.
The North East, for instance, faced the biggest rent hikes across Great Britain, with a 12.1% year-on-year increase in August, marking the third consecutive month of double-digit growth. In contrast, London saw the smallest percentage increases, with rents up just 2.1% year-on-year, a significant deceleration from the 17.1% growth recorded in August 2023 when rents were recovering from the post-Covid lows.
Long-term Trends and Real Growth
Looking back over the last five years, the index reveals that across Great Britain, average rents have risen by 34% or £349 pcm. This translates to an additional £4,184 a year for the typical tenant.
Rents in the North of England are up 48%, outpacing the 34% growth recorded in the South. This predominantly reflects the house price cycle, with prices in the North catching up with the South over the last seven years.
However, when adjusted for inflation, the real-term increase in rents across Great Britain since 2019 is more modest at 10%, averaging 2% per year. In real terms, rents in the North of England have increased by 24%, outpacing the 10% recorded across the South of England.
Wales is the only region where rents have fallen in real terms over the 5-year period, down 5%. Meanwhile, Greater London rents only just sit in positive territory, having seen 3% real rental growth since 2019. This equates to an average of just 0.2% real rental growth each year in the capital.
The North West tops the rental growth league with a 29% increase since 2019 after accounting for inflation.
Future Outlook
The slowing pace of rental growth in the South can predominantly be attributed to increasing affordability pressures. But while tenants in the South have seen weaker growth in percentage terms, in cash terms, they've faced big rises. A 10% increase in South of England rents would cost tenants an extra £1,581 a year, £428 more than for a tenant in the North.
Despite the overall deceleration across the country, rental growth remains in positive territory, driven by landlords' higher costs. Nearly half of the average monthly rent a landlord receives now goes towards expenses. This persistent growth, albeit at a slower pace, underscores the ongoing challenges in the rental market, balancing tenant affordability with landlord profitability.
Landlords are now turning their attention to potential policy changes, particularly the upcoming Budget. While recent Budgets have mostly left investors alone, landlords will be watching October's announcement more closely than usual to get a steer on what they can expect from a Labour government.
