Rental Market Reels: Bank of England’s Inflation Battle and the Rising Tide of Rents in Great Britain

The property market in the United Kingdom is constantly in flux, with the rental sector now at the epicentre of economic dialogues. We are traversing a phase marked by pronounced financial volatility, where the rental market exposes multifaceted dynamics. The existing circumstances are defined by an intense combination of escalating rents and shifting market forces, painting a picture that demands meticulous analysis and understanding.

Central to this narrative is the Bank of England’s ongoing battle against inflation, according to this Market Insight report. This formidable endeavour, aimed at stabilising the economy, has inadvertently rippled through the rental market, influencing its trajectory in unforeseen ways. The Bank’s monetary policies, particularly the adjustments in interest rates, have a profound impact not just on lenders and borrowers but also on landlords and tenants across Great Britain.

This article delves into the nuances of this intricate relationship. It aims to unravel how the Bank of England’s strategies to curb inflation inadvertently shape the rental landscape.

Historical Perspective

To fully grasp the current dynamics of the rental market in Great Britain, it is essential to cast a retrospective glance at its historical progression, particularly in relation to previous economic cycles. A poignant comparison arises when we look back at the late 1980s, a period marked by a similar rate-hiking cycle initiated by the Bank of England. Much like today, this era saw a significant uptick in interest rates, a move designed to curb the inflationary pressures of the time. However, the landscape of the rental market back then was markedly different from what we observe today.

In the late 1980s, the rental market was less developed and less integral to the housing sector than it is now. The concept of buy-to-let mortgages, which has since revolutionised property investment, was yet to be introduced. This meant that private landlords with limited portfolios primarily dominated the market, and the availability of rental properties was comparatively scarce.

The advent of buy-to-let mortgages in the early 1990s heralded a new era for the rental market. This innovative financial product opened the gates for a broader range of investors to enter the property market, significantly increasing the supply of rental properties. It democratised property investment, allowing individuals to invest in rental properties through leveraged financing. As a result, the rental market began to expand rapidly in terms of the number of available properties and the diversity of landlords.

This evolution fundamentally transformed the rental landscape. Where once it was a niche sector with limited impact on the broader housing market, it has become a pivotal component, influencing and being influenced by broader economic trends. The introduction of buy-to-let mortgages created a more dynamic and competitive market, fostering growth but also introducing new vulnerabilities, particularly in relation to interest rate fluctuations.

The differences are stark as we compare the present situation with the late 1980s. Today’s rental market is more mature, more integrated with the financial sector, and more sensitive to economic shifts, especially monetary policy-related. This historical perspective is crucial in understanding how past developments have shaped the current challenges and opportunities within the rental market, setting the stage for analysing the current market dynamics.

Current Market Dynamics

The current rental market in Great Britain is navigating through a period of significant change, largely influenced by the recent hike in interest rates. This shift in monetary policy by the Bank of England, primarily aimed at controlling inflation, has had a more pronounced effect on the rental sector than on house prices. Understanding this dynamic is key to comprehending the current state of the rental market.

Interest rates play a crucial role in determining the cost of borrowing, which impacts both the property purchase and rental markets. However, the sensitivity of these two markets to interest rate changes is not uniform. While house prices have shown a degree of resilience or modest deflation in the face of rising interest rates, rents have responded more acutely. This disparity can be attributed to several factors.

Firstly, the immediacy of rental agreements allows for quicker adjustments to changing economic conditions compared to the property sales market, where transactions are less frequent and involve more significant financial commitments. Landlords, facing increased costs due to higher mortgage rates, are often compelled to pass these expenses onto tenants through higher rents. This reaction is more rapid and direct in the rental market, leading to a quicker and more noticeable impact on rent levels.

The burden of increased finance costs is one of many challenges landlords face. The rise in wages and the cost of building materials have further compounded their financial pressures. While beneficial for workers, higher wages increase the operational costs for landlords, particularly those with larger portfolios requiring ongoing maintenance and management. Similarly, the escalating costs of building materials directly affect landlords engaged in property development, refurbishments, or essential maintenance work.

These factors combine to create a situation where landlords are squeezed from multiple directions, with limited options but to adjust rental prices upwards. While necessary from a financial standpoint, this response adds further strain to the rental market, especially for tenants grappling with broader economic uncertainties.

Rental Market Forecast

The projection for the rental market in Great Britain over the next four years indicates a substantial increase, with rents expected to rise by 25%. This forecast reflects the immediate impact of current economic factors and suggests a significant shift in the rental landscape.

Several elements contribute to this anticipated rise in rents. The primary driver is the increase in interest rates, which directly affects landlords who rely on mortgages and borrowing to finance their properties. As borrowing costs escalate, landlords are more likely to pass these expenses onto tenants through higher rents. This trend is exacerbated by the generally high demand for rental properties, which allows landlords some degree of pricing power.

Additionally, other economic factors play a role. The rising cost of living, including higher wages and the increased price of building materials, contributes to the overall operational costs for landlords. These costs are often absorbed partially or entirely by increasing rents. Furthermore, the limited supply of new rental properties and a steady or increasing demand for rental accommodation create a market environment conducive to rent increases.

Impact on Landlords and Tenants

The current economic climate has placed a significant squeeze on homeowners, particularly those who have entered the buy-to-let market. For landlords, the challenge lies in balancing the rising costs of maintaining and financing their properties with the need to remain competitive in the rental market. This balancing act is becoming increasingly difficult as interest rates climb, squeezing the margins from which landlords historically gained profit.

The shift towards a reliance on borrowing, which was once a boon for expanding the rental market, is now a double-edged sword. Landlords who have heavily invested in properties through loans find it more challenging to manage their portfolios profitably. This scenario could reduce the number of rental properties available if landlords sell off assets to maintain financial stability.

For tenants, the impact is twofold. While they face higher rents, which strain their budgets, they also encounter a market with potentially fewer rental options. This situation could increase competition for available properties, further driving up rental costs.

Future Projections

The relationship between mortgage rates and rental prices is a critical factor in determining the future direction of the rental market. Historically, there has been a correlation where rising mortgage rates often lead to increased rents as landlords seek to cover their higher borrowing costs.

Looking ahead, the direction of the rental market will largely depend on the trajectory of interest rates. If rates continue to rise or remain elevated, rents will likely follow suit, maintaining the upward trend forecasted. Conversely, if interest rates stabilise or decrease, there could be a moderation in the rate of rent increases.

However, given the current economic indicators and the Bank of England’s stance on combating inflation, it seems plausible that interest rates will remain higher than they have been in the recent past. This suggests that the rental market will continue to experience upward pressure on rents, presenting challenges for landlords and tenants in the foreseeable future.

Long-term Outlook

In contemplating the long-term prospects of the rental market in Great Britain, we must consider the potential impact of new investors entering the market. The current economic climate, characterised by lower house price growth coupled with rising rental rates above inflation, creates a unique landscape that could attract new entrants in the property investment arena.

This scenario presents a silver lining; as house price growth moderates, investment opportunities in the buy-to-let market may become more appealing, particularly for those looking for assets that can yield higher returns than other investment types. The higher rental growth offers better returns on investment and serves as a hedge against inflation, making property investment a viable option in uncertain economic times.


The rental market in Great Britain is currently at a crossroads, shaped by rising interest rates, increased operational costs for landlords, and the broader economic climate. The forecast of a 25% rise in rents over the next four years indicates a significant shift affecting landlords and tenants alike. 

While challenges abound, particularly in the short to medium term, there are potential opportunities on the horizon, especially for new investors attracted by the prospects of above-inflation rental growth.

As we navigate through these changing times, understanding the complexities and dynamics of the market is crucial. For those looking to invest, manage properties, or simply stay informed about the latest trends in the property market, partnering with a knowledgeable and experienced property specialist is invaluable.

Our expertise and insight can help you make well-informed decisions that will maximise the potential of your investment and ensure long-term success. Whether you are a seasoned investor or a new entrant in the market, we offer tailored services to help you navigate the evolving landscape of the rental market. Get in touch with us for more information.


1. How does the Bank of England’s interest rate policy impact the rental market?

The Bank of England’s interest rate policy directly influences the cost of borrowing. Higher interest rates increase mortgage repayments for landlords. This often results in landlords raising rents to cover these additional costs, thereby impacting the overall rental market by increasing the cost of renting for tenants.

2. Why are rents expected to rise significantly over the next few years?

Rents are forecasted to rise due to a combination of factors. The increase in interest rates raises the cost of borrowing for landlords, who may pass these costs onto tenants. Additionally, other operational costs like maintenance and wages have also risen. The high demand for rental properties and a relatively slower supply growth further contribute to this upward pressure on rents.

3. Is it a good time for new investors to enter the buy-to-let market?

It can be an opportune time for new investors, especially if they can capitalise on the slower growth in house prices and the potential for higher rental yields. However, it’s important to consider the increased costs and risks associated with higher interest rates and regulatory changes. Prospective investors should conduct thorough market research and possibly seek advice from property specialists like Chambré.

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