The Top 3 Reasons Rents Will Increase in 2023

Demand and rising rates have already contibuted to a 4.4% increase in rents in the 12 months to January.


UK Private Rents Grew 4.4% in January year over year 

The Office for National Statistics (ONS) reported there was year over year growth in January rents of 4.4%.

That’s 0.2% growth over December rents, and stats that will continue to worry renters across the UK.

Below we’ll confirm the top 3 reasons why rents will continue to increase throughout 2023.

Top 3 Reasons Rents will Increase in 2023

1) Continued rise in demand for rental properties

According to the Mortgage Works, Landlords continue to report high demand for rental properties, with 65% saying demand has risen in the last 3 months. And 39% of those Landlords saying demand has increased significantly.

An increase in demand for rental properties can lead to an increase in rent prices.

When the demand for rental properties is high, landlords and property investors can increase rent prices to take advantage of the higher demand and maximize their profits. Additionally, higher demand can lead to a shortage of rental properties, which can also drive up rent prices.

The increase in demand for rental properties is due to two main reasons the increasing cost of buying a home due to high inflation and high Mortgage interest rates.

Many potential homeowners are unable to afford the cost of buying a home, so they are turning to renting as an alternative. Additionally, the rental market is attractive to many would be home buyers where there is a risk of house prices falling.

High Mortgage rates mean some Landlords will choose to sell up as their rental property is no longer affordable. Unless another Landlord takes on this property, they’ll be another tenant looking for a new property, and one less rental property on the market.

2) High Interest Rates

When interest rates increase, the cost of borrowing goes up and so does the cost of renting. Landlords and property investors who rely on rental income to pay their mortgages will need to increase the rent prices to cover the cost of their higher interest payments. The higher rent prices will also reflect the higher cost of living that comes with an increase in interest rates.

Additionally, higher mortgage rates can lead to an increase in demand for rental properties, as potential homeowners may not be able to afford the higher cost of buying a home. And Landlords may not be able to afford to buy or keep their rental properties. This increased demand can also lead to higher rent prices.

At least 1.4 million property owners, including landlords will need to Remortgage in 2023. For many Landlords they will have to decide whether to put up tenants rent, or sell their property.

There has been some positive signs in January however. As whilst the Bank of England Base Rate has increased, Fixed Rates, which are not linked to Base Rate changes, have continued to slowly come down as Lenders compete for business.

3) Tightening of Buy to Let Mortgage Criteria

63% of Landlords have a Buy to Let Mortgage on at least 1 property, showing Buy to Let Mortgages are a key component in the rental market.

Following the “mini budget” in September and the market volatility that followed, Mortgage Lenders tightened Criteria and increased stress testing rates. This directly affects how much Landlords are able to borrow on their rental properties.

Many Mortgage Lenders went from stress testing Buy to Let Mortgages at 5.50% to 7.50%. To show the difference this makes to maximum borrowing, please see the below example based on a basic rate taxpayer taking out a Buy to Let Mortgage before and after the stress test changes:

– Rent of £1,000 per month stress tested at 5.50% = £174,545 max Mortgage

– Rent of £1,000 per month stress tested at 7.50% = £128,000 max Mortgage

A whopping £46,545 in borrowing capacity has been taken away from Landlords in the above example.

Why are changes to Criteria and Interest Rates such a problem?

The tightening of buy to let affordability criteria negatively affects the rental market by making it more difficult for landlords to borrow the money required to purchase rental properties.

This leads to a decrease in the number of rental properties available, which can cause rental prices to increase due to the reduced supply. Additionally, the tighter criteria can make it more difficult for landlords to make a profit, leading to fewer landlords in the market and further reducing the supply of rental properties.

Another issue with this is current Landlords being unable to release capital from their properties to enable them to make essential improvements.

In 2025, new tenancies can only be issued on properties which have an energy performance rating of C or above. The majority of properties won’t currently conform to this standard, so improvements will need to be made to get the property up to scratch. This could cost thousands, and many landlords will likely need access to funds from Mortgage Lenders to enable them to complete the works. If they can’t, and if they have no other means to get the property up to the required standard, they will have to sell.

What else could impact the rental market in 2023?

Tougher regulatory and taxation pressures could also impact the rental market and therefore rental prices in 2023.

The Renters Reform Bill is a proposed piece of legislation that would introduce new rights for renters in the UK. It is designed to give renters greater security and stability by introducing new rules on eviction, rent increases, and tenant fees. The bill also includes measures to encourage landlords to invest in the rental market and make it easier for tenants to access affordable and secure housing.

Inflationary pressures – Inflation affects rent prices by increasing the cost of living and creating additional demand for rental properties. When the cost of living increases, rental prices also go up to reflect the higher cost of living. In addition, when the demand for rental properties increases, landlords and property investors may also increase rent prices to take advantage of the higher demand and maximize their profits.

What’s next?

Speak to a whole of market Mortgage Brokers which can provide you with the specialist Mortgage Advice you need.

We have a range of reputable Mortgage Advisors waiting to take your enquiry, regardless of the complexity of your case.

So, get in touch and see how we can help you.