Guide to Rental Price Indices

Introduction

The rental property market has boomed in recent years as more people find themselves unable to get on the property ladder.

According to the government's 2020-21 English Housing Survey, the private rental sector accounts for 4.4m (19%) of all households. The rate has remained at around 19% to 20% since 2013. Private renting is more prevalent in London, where 27% of households live in the private rented sector.

Over the last decade there has been an increase in the proportion of people aged 45-54 living in the private rented sector, from 11% in 2010/11, to 16% in 2020/21. Over the same period there was a decrease in the proportion of owner occupiers in the same age group, from 74% to 65%.

In 2022 there were an average of 82 prospective renters registered with each letting agency branch, according to letting and estate agents' organisation Propertymark.

For landlords the financial rewards can be great. In 2021 the average monthly rent broke the £1,000 mark for the first time, according to figures published by Homelet. In London the average monthly rent is just over £1,600.

However, a word of caution is advised when looking at average rental property price figures of homes to rent. While some use asking prices, others base their average monthly figures on agreed rents, which can be around £100-£150 lower than the average national asking price.

A further indication of the scale of the UK property market has come from mortgage lenders' trade body UK Finance. Purchasing using buy-to-let lending increased to £18bn in 2021, up by 83% on 2020's figures.

With such a strong demand for rental property among tenants comes a significant reduction in risk for landlords, who are finding it easier to rent properties. In 2021 estate agents Hamptons found that it takes just 8.9 days on average to let a property in the UK, the shortest amount of time recorded since it began recording the data. It also found that the average rural house is let in 8 days and the average for city homes is slightly longer, at 10.6 days.

Who is taking advantage of this rental property sector boom? Landlords with a small property portfolio dominate the private rental market. In 2021, 42% of landlords owned two to four properties, compared to 7% who owned more than 20.

There are also several large social housing associations in the rental sector. The largest of these is Clarion Housing Association, which manages 125,000 homes in around 170 council areas.

Summary of the Main Rental Property Price Indices

Agreed Rent Indices

Asking Rent Indices

Survey-Based Indices

Glossary

Mean

Mean is the most common way to calculate an average rent, by adding all the values together and dividing by the number of values used.

Median

The median calculates an average by arranging the values in order of magnitude and finding the middle value. If there is an even number of values the median is the mean of the two values, closest to value in the middle.

Mix Adjustment

Mix adjustment is the division of different cells with similar characteristics, such as location and number of bedrooms. Rental price data can then be allocated to the different cells in order to assess the average price of each cell, i.e. of properties with different characteristics. After the mean values have been weighted, the average cell price is the mix-adjusted price. Mix-adjustment is not widely used in calculating rental price indices and is mainly used in house price indices.

Yield

Yield is the return on investment for landlords taking into account rent charged and the price paid for the property. Gross yield does not take into account operating costs of managing a property such as insurance and letting agents' fees and is calculated by dividing the property's annual rent by the value and expressed as a percentage. Net yield carries more credibility among landlords as it takes into account operating costs. This is calculated by subtracting the operating costs from the rent charged then dividing by the price paid for the property.

Void Period

This is the length of time a property is left vacant either straight after purchasing the property to rent or when a tenant leaves and a replacement tenant is found. When demand for rental property is high the length of the void period reduces.

Rent Index

Summary

Launched in 2009 the Rent Index aims to provide a real time measurement of average UK rents in the private residential sector. The Index is updated throughout the day and is published by Welland Media, which owns the landlord services website Property Hawk. The typical sample size is around 2,000.

Data

The index gives an average rent for property in England and Wales as well as a percentage change over the last month, three months, six months and year. The index is also available in graph form comparing the average price change over the last 90 days shown in red against a 12-month trend line shown in blue.

Method

The average rent is calculated from agreed rents that are submitted on tenancy agreements from landlords using the Property Hawk website over a 90 day period. The figures are not adjusted to take into account seasonal variations.

Advantages

• With regular daily updates this offers the most up to date average rental price of any UK rental index
• Its red and blue line graph is a useful way of comparing current fluctuations in prices with seasonal variations

Disadvantages

• With around 2,000 properties the sample size is among the smallest of any rental price index
• The information available is limited to comparisons of the average rent with no detailed analysis to accompany the figures
• Only gives a figure for England and Wales as a whole without any regional breakdown

Verdict

With its real time updates Rent Index is the most up to date rental price index in the UK. But its small sample size, lack of analysis or regional information makes it among the less detailed available.

ARLA Propertymark Private Rented Sector Report

Summary

The Association of Letting Agents (ARLA) has been compiling its monthly Private Rented Sector Report, which is based on a survey of around 400 of its ARLA member branches on a monthly basis since 2015. In 2017 ARLA became part of Propertymark, an organisation combining a number of property groups including the National Association of Estate Agents (NAEA).

The ARLA Propertymark Private Rented Sector Report covers key rental sector issues including supply and demand, monthly rental prices and management of buy to let properties.

Data

Information provided includes the average supply of rental properties and number of prospective tenants per branch of letting agent. In addition, the ARLA Propertymark Private Rented Sector Report also details the proportion of letting agents witnessing rent rises as well as the void period between tenancies and average length of a tenancy. The information is provided as a per branch average, including a regional breakdown.

Method

The survey is carried out at the beginning of each month by Opinium research.

Advantages

• The monthly data and analysis offers an interesting, up to date snapshot of the rental property market
• It is presented in an accessible format with clear bullet points that are easy to navigate

Disadvantages

• The Private Rented Sector Report does not include data about average rents, which are of interest to both tenants and landlords

Verdict

The ARLA Propertymark Private Rented Sector Report is one of the most detailed in the UK about the residential property market and provides key data for professional landlords and potential buy to let landlords alike. But the lack of data about average rents makes it of little interest to a consumer audience.

The Office of National Statistics Private Rental Market Statistics

Summary

The Office for National Statistics publishes rental data from the Valuation Office Agency (VOA), which published the data under its own brand until 2019. The ONS branded Private Rental Market Statistics are for England and published every six months based on data for around 500,000 rented properties.

Data

Information provided includes the median monthly rent over a 12-month period for different property types, from a room through to four or more bedroom properties. The figures are available for England as a whole, regionally and by local authority area. The published data also includes the average rent in the lower and upper quartiles in each area.

Methodology

The rental data is collected locally and nationally by the VOA's 85 rent officers and provided on a voluntary basis from landlords and letting agents. Around 12,000 sources of data are used. The information is entered into the VOA's central administrative system and a statistics team receives an extract to calculate the median agreed rents for each area and property type. Only cases with sufficient evidence of a transaction taking place are included.

Advantages

• As the Official National Statistics record of rental prices its data is among the most respected and used by councils and charities as a valuable source of information
• The large size of the sample and the ability to breakdown the figures to local authority area make it among the most detailed rental price indices
• The impartiality of the rent officers who collect the data also add to its credibility

Disadvantages

• Six-monthly publication makes it less up to date than other rental price indices
• The data is poorly presented and has no analysis
• The figures only cover England

Verdict

The level of local detail on average rental prices and impartiality of the housing officers that collect the data make this a robust set of figures. However, the infrequent publication and poor presentation make it out of date and difficult for many consumers to understand.

Zoopla Rental Market Report

Summary

Zoopla's Rental Market Report has been publishing quarterly rental price information since 2019. A quarterly rental prices index had been published by Findaproperty.com, which merged with Zoopla in 2012.

Data

The data from the Zoopla Rental Market Report is based on information on rental properties from 500 areas across the UK and is powered by Hometrack. This provides data on renter demand by price band in London, the average rental value, change in rental growth, rental affordability and average days on market. It also flags up the regions and cities with the highest and lowest rental growth.

Method

The quarterly Zoopla Rental Market Report uses the same methodology as the Zoopla UK Cities House Price Index. This is based on repeat sales methodology and tracks the changes to achieved rents over time. Although it looks at data across 500 geographic areas it only publishes data for 55 areas. The main input is Zoopla rental listings data with additional data on housing attributes and demographics used with the index's algorithm and models. The listing data is adjusted to reflect the difference between asking and achieved rents.

The repeat sales methodology sees pairs of lettings for the same or similar property in a local area used to generate a raw index series for one, two, three and four bedroom homes in each locality. The index is not seasonally adjusted.

The affordability of renting measure uses data on gross earnings for a single earner from the Office of National Statistics and expresses rent as a percentage of gross earnings.

Advantages

• The data is well presented for a professional audience and the accompanying commentary is easy to read
• The analysis of rental affordability by looking at data on earnings provides an interesting insight into local rental markets

Disadvantages

• The quarterly data makes it less timely than the monthly indices
• The headline figures are presented in a press release for consumers. A less accessible version aimed at professionals can be downloaded online

Verdict

The Zoopla Rental Market Report offers useful information about local property markets tailored to both consumer and professional audiences. The rental affordability data is also welcome.

Homelet Rental Index

Summary

Homelet specialises in tenant referencing and insurance services for the residential rental property sector and has used reference data submitted by around 3,000 landlords to provide information on average rental prices since 2009. Typically, references of around 39,500 tenants are checked by Homelet each month.

Data

The Homelet Rental Index shows the average mean monthly rent in the UK, with a regional breakdown complete with monthly and annual comparisons in the average rent. It also provides information about rises and falls in average tenant income. More in depth analysis looking at London's rental property market is also provided.

Methodology

Because the information submitted is based on reference applications the rental prices are agreed prices rather than asking prices. Homelet removes the very cheapest and most expensive rental prices to avoid skewing the data.

Advantages

• The data is submitted from across the UK, which makes it broader than many England only indices
• Monthly release makes it among the most up to date rental indices
• It is the only index to provide information on tenant income, which is particularly useful to landlords

Disadvantages

• There is too little analysis, with only London's rental property market coming under scrutiny
• The index is not widely publicised and its online presentation is not as user friendly as other indices

Verdict

To compete with well-publicised indices, Homelet needs to improve the promotion, presentation and analysis of its rental index, which offers a unique look at tenant income.

Rightmove Rental Trends Tracker

Summary

Since 2011 Rightmove has published its quarterly Rental Trends Tracker, which measures asking rents from properties coming onto the market via its website. For two years prior to this Rightmove produced its Consumer Rental Forecast, featuring the results of a survey of around 5,000 tenants and potential tenants. This looked at the supply and demand within the rental market but did not include figures on average rents.

Data

The average asking rent nationally and regionally is provided as well as the quarterly and annual rate of change. The Rental Trends Tracker also includes the top five highest growth and in-demand local areas, both outside and inside Greater London. The figures for these local areas are based on the average asking rent of a two-bedroom property.

Method

The information is based on asking rents from around 300,000 properties each quarter. All short lets are removed.

Advantages

• With around 300,000 rents involved it offers a comprehensive UK wide and regional look at latest average rents
• The quarterly and annual rate of change gives a good indication of latest pricing trends
• The more local information gives a useful guide to the best performing areas

Disadvantages

• As it is produced quarterly the information can be out of date compared to monthly indices
• The local information is restricted to a small number of areas

Verdict

The focus on asking rents in a report that is released only quarterly is a missed opportunity. Asking rents offer an up to date look at current pricing trends and should ideally be released far more frequently, preferably monthly.

Belvoir Rental Index

Summary

Lettings agency Belvoir is among the most recent recruits to the rental price index arena. In December 2012 it launched a five-year rental index report looking at long term rental market trends and in January 2013 introduced a monthly index. The information in the Belvoir Rental Index is based on advertised rental prices of around 2,000 properties across the 130 of its 165 UK wide offices that have been opened for more than five years.

Data

Information features average monthly rental prices, with monthly, annual and five year changes included. An England, Wales and Scotland breakdown, as well as movements in prices by region and county, are also included.

Method

The monthly average rental price data is based on a three-month mean average. For example if the average rent in May is £500, for June is £525 and for July is £515, the average rent for July is recorded as £513 (£1,540/3). This adjustment helps to take into account short-term rental market supply and demand fluctuations that may push rents up for a limited time, such as an influx of new build properties coming onto the rental market.

Advantages

• By including data from 2008 the Belvoir Rental Index offers a useful long-term guide to rental price fluctuations as well as changes on a monthly and annual basis
• The use of a three-month average to calculate the monthly rental price average helps take into account local fluctuations in supply and demand of rental housing stock
• Monthly release offers an up to date look at the rental property market
• Information is clearly presented in a way that is accessible to both buy to let landlords and tenants

Disadvantages

• With just 2,000 properties the sample size is too small to offer anything other than a snapshot of local rents
• Despite having 165 offices nationwide the bulk of its properties are in England. Of properties to rent on its website in March 2020 there were around 200 in Scotland, 100 in Wales and a similar number in Northern Ireland
• The use of advertised rental prices hinders the Belvoir Rental Index's accuracy, as these can be markedly different from agreed prices

Verdict

The use of a three-monthly average to calculate average monthly rental prices is a welcome addition to the range of rental indices as it helps take into account local rental market supply and demand changes. But with such a small sample size, its use of advertised not actual prices and with the bulk of its properties located in England this index only offers a basic snap shot of average rental prices.

Office of National Statistics Index of Private Housing Rental Prices (IPHRP)

Summary

The Office of National Statistics (ONS) is the largest producer of official data in the UK, and produced its first private rental price index in June 2013. The index, called the Index of Private Housing Rental Prices (IPHRP), focuses on long-term trends in rental prices and is published quarterly. It aims at measuring rents paid for all the private rented dwelling stock (for both existing agreed rents and new rents); it is not designed to measure the average price of new rental contracts agreed on the market.

Data

Unlike the ONS's monthly House Sales Index, this rental index has no average prices and instead focuses on rising and falling trends in rental prices, shown as a percentage. This is available UK wide (except Northern Ireland), and separately for England, Scotland and Wales as well as for nine English regions. The percentage change over the last 12 months is a key piece of data published. The IRHRP has access to agreed rental price data for England and its regions dating back to January 2005, for Wales dating back to January 2009 and for Scotland back to January 2011. This enables the IPHRP to show longer term changes in rental prices.

Method

The IRHRP is calculated using expenditure weights and rental indices. The expenditure weights are updated yearly and reflect the expenditure on rented private housing regionally and UK wide (except Northern Ireland). To compute weights, the total count of private rental dwellings is used from published housing stock statistics, such as the English Housing Survey and the Scottish House Condition Survey. The rental indices are calculated monthly, are relative to January 2011 and are broken down by region and property type, such as flat or semi-detached house as well as whether properties are furnished or unfurnished. A sample of private rented properties is used to compute the index. Collected rental prices are assumed to be valid for 18 months. To keep the sample homogeneous, a matching approach is adopted: if no rental price is available for a property in the sample, the property is replaced by another dwelling of comparable quality.

The sources for rental price indices and expenditure weights are the ONS's Private Rental market statistics, which uses Valuation Office Agency (VOA) data, and rental prices surveys published by the Scottish and Welsh governments. Private rental data from the Ministry of Housing, Communities and Local Government (DCLG) is also used to calculate expenditure weights.

Advantages

• The VOA and Scottish and Welsh government data is well respected and covers a large sample size totalling 521,000
• As the largest supplier of official statistics in the UK the ONS has added credibility in the way it compiles figures

Disadvantages

• By only showing percentage change in rental prices the data is limited
• Its quarterly publication makes the figures out of date
• Without Northern Ireland's figures it gives an incomplete picture of UK rental prices

Verdict

The use of well respected and thorough sources of government data to calculate trends in rental prices make this an interesting addition to the range of rental price indices on offer. However, without any rental prices and only a quarterly publication, its data offers a limited picture of the UK rental market.