Surging rents drive up capital growth according to Savills

UK housing costs hit £200 billion for the first time in 2023, according to the latest research by the property firm Savills.

The analysis of private and social rents plus owner-occupier mortgage costs reveals a £22 billion increase on the year, which occurred on the back of unusually strong rental growth and higher interest rates for those who were either on a variable rate, came to the end of a fixed-rate deal or moved home.

It means the nation’s housing costs have risen by a total £34.3 billion in the last two years equating to 21 per cent)m - that’s three times that seen in the preceding five years, says Savills.

“The increase in housing costs has been unevenly distributed, with more younger households immediately affected by the rise in rental costs with many owner-occupiers on fixed rates remaining insulated from the turbulence seen in the mortgage markets” according to Lucian Cook, Head of Residential Research at the agency.

“Although fixed rates have eased back recently, the delayed impact of rate rises will mean further increases in the nation’s housing costs in 2024 as more homeowners come off fixed rates, putting a further squeeze on household budgets.”

Savills estimates a further 1.2m borrowers will roll of relatively cheap fixed rate mortgages in 2024. At the same time, the number of older households owning their home outright continues to rise, hitting an estimated 9.57m in 2024 across the UK.

In total, the bill for 8.43m mortgaged owner-occupiers reached £98 billion in 2023, up £13.9 billion or 17 per cent on the year. Cost increases were primarily driven by growth in mortgage interest repayments, which increased a whopping 34.6 per cent on the year.

In comparison, total costs to renters reached £101.9 billion, a £8.2 billion rise on the year - some 8.8 per wThis was primarily driven by a 10.6 per cent increase in private rental costs, while costs for social renters grew by a lesser 4.1 per cent on the year.

“Homes to rent were in short supply in 2023 and demand high. This, combined with robust wage growth, fuelled an unusually high increase in the housing bill faced by tenants in the private sector” continues Cook.

“While it’s difficult to see where an increase in rental supply will come from, rents in the private rented sector appear to be rapidly approaching an ‘affordability ceiling’.  This should slow the rate of growth, but renters will still be left spending a larger proportion of their income on rent than at any point in the last 18 years” he adds.

London saw the biggest increase (14.5 per cent) in housing costs in 2023 of over £6.2 billion, followed by the South West (13.5 per cent) as people moving  to the area increased their exposure to higher mortgage costs.

The North East saw the smallest uplift, with costs increasing by 9.5 per cent.

Overall, London bears the biggest brunt of the housing bill, accounting for a quarter of all housing costs, and a third of all private rental costs.

London’s private rental bill exceeded £25 billion in 2023, and now makes up more than half of all housing costs in the capital for the first time. However, the South East bears the highest owner occupier housing costs – totalling £18.3 billion. This is £1 billion more than London.