Rents are set to outperform house prices in the next 3 years and are likely to climb by around 8% per year until 2026, outperforming house prices that are likely to remain flat over the next 12-18 months.
The stubbornly low supply of rental homes and rising operational costs for Landlords being passed on to Tenants will continue to place upward pressure on rents. The see-saw effect with house prices and rents has been due to interest rate rises creating subdued buyer activity that is weighing down on house prices.
Prices are likely to reach a low point in the next year and until the Bank of England starts cutting rates, house prices are unlikely to make a recovery, due to cost of finance.
Whilst there are lots of unreported house sales going through , we won’t see the reality of how the market is performing until around next Spring. House sales agreed today are likely to complete by Christmas and the Land Registry will publish the sale prices 3 months after completion.
In the past year house prices have fallen by around 6% on average, there are of course, regional differences. Flawed policy has caused the economy to be stuttering along for some years now, and is in poor shape. Without a stimulus package or major infrastructure investment, whenever that may come, I foresee corporations in the red and unemployment rising. The base rate is unlikely to fall any time before late 2024 , house prices are set to continue falling for the next 12 months.
What Is The Outlook For Rents?
Whilst I expect rental price growth to be slower than the double-digit annual rises, we have seen for the past two years, I am expecting rents to continue rising at some pace for the next few years.
The low supply of rental homes in City centers and increased landlord costs will continue putting upward pressure on rents , despite concerns around tenant affordability.
Our own data shows that we had 56% less property in June of this year compared with the same time in 2020.
The competition for rental property is fierce and tenants are outbidding each other to secure their home. Affordability is front and center of all tenancy applications. The rise in rents is good news for landlords on one hand, though demonstrating affordability is crucial as it presents financial risk to landlords in equal measure.
I foresee the biggest rent increases this year and next as landlords come to re finance after their current fixed rate deals come to an end.
This will likely put the average rent of a home in Great Britain at £1,550 per month by 2026 – £333 per month more than in December 2022. Since 2021 rents have been rising at record levels, and the trends indicate a 55% increase by 2026. In the 5 years preceding 2021 average rents rose just 20% from 2016. The pandemic, national lock-downs of 2020/2021 and eviction ban, stifled growth in the private rented sector. See the graph below.
As an Agent operating in the London area , I expect rents in the capital to outperform the UK average. The combination of lower yields, service charge/operational costs and higher mortgage rates, will continue to put the upward pressure on rents.
The Bank of England has been using interest rates as a blunt instrument to curb inflation, that has impacted the rental sector more than any other part of the UK property market. Unless the fundamentals of the rental market are addressed, in supporting and incentivising landlords to improve the quality of, and expand their portfolio, and interest rates start to fall, rental prices shall remain high over the next few years.
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