Stay informed with free updates
Just sign up to UK property myFT Digest: delivered straight to your inbox.
UK rents rose at a record pace of 9.2% last month, while house prices remained stagnant, with London hit hardest as higher borrowing costs continued to squeeze both owners and tenants.
The jump in average private rents in the year to March marked the biggest annual percentage change since the Office for National Statistics began collecting data in 2015, compared with a 9% rise in the 12 months to in February.
House prices fell 0.2% in the year to February, better than January’s 1.3% fall, taking the average cost of a property to £281,000.
Wednesday’s data identifies London as the region with the most expensive rents, averaging more than £2,000 a month, and rising the fastest, at 11.2% a year. Overall in Great Britain the average monthly rent was £1,200.
The ONS data covers the entire stock of privately rented properties, meaning they lag prices for new letting deals, and separate data has indicated the rental market is cooling.
But the 9.2% rise highlighted how rising financing costs have hit tenants, whether as landlords take properties off the market or pass on the cost of higher mortgage repayments.
High mortgage rates have made it difficult for many people to purchase a property, increasing demand for rentals.
Katy Eatenton, mortgage and protection specialist at financial services group Lifetime Wealth Management, said the data highlights “the enormous pressure tenants are under. Rising mortgage rates have meant that many landlords have had no choice but to increase rents.”
Mortgage rates have fallen from last summer’s peak but remain much higher than two years ago, reflecting the Bank of England’s decision to raise interest rates to 5.25%, a 16-year high, in attempt to tame inflation.
Financial markets expect the BoE to cut rates this year, but traders have revised down the prospect of lower borrowing costs from early 2024 on concerns about sticky underlying price pressures.
Official data released on Wednesday showed overall inflation slowed less than expected, standing at 3.2% in March.
According to the ONS, the average house price was around £4,000 below its peak in November 2022, reflecting the impact of higher interest rates.
However, the average property cost around £50,000 more than in January 2020, a sign of the impact of the “space race” at the start of the pandemic, when interest rates were at an all-time low of 0.1%.
The ONS has reported wide variations in house prices in different parts of the country. While London was the worst, recording an annual contraction of 4.8%, Scotland was the best, recording a 5.6% increase.
Jake Finney, an economist at consultancy PwC UK, said the smaller fall in house prices in February compared to January could signal “that we are nearing the end of the housing market correction”.