Rents set to rise as landlord risks grow

Landlords are being warned to expect tighter margins as new rules increase the risks around regaining possession and setting income levels.

The prediction from property consultancy Knight Frank also warns tenants that rents will rise because of growing landlord costs.

The firm’s forecasts for rents have been trimmed slightly, and it adds that the direction of rent prices remains upwards as the Renters’ Rights Act comes into force on 1 May.

The changes introduce greater uncertainty over repossession, sales and pricing decisions.

Rents will rise

Tom Bill, the head of UK residential research at Knight Frank, said: “The direction of travel is clear in terms of upward pressure on rents.

“This additional risk needs to be priced in, particularly where supply is constrained.”

Some landlords are expected to leave the sector once the rules take hold, tightening rented home availability.

Knight Frank now expects 3.5% growth in both central and outer London this year, compared with current rates of 1.2% and 2.8%.

Higher borrowing costs

At the same time, demand is shifting as higher borrowing costs are pushing some buyers into the lettings market.

Also, geopolitical uncertainty is keeping other investors on the sidelines.

There has also been movement from households returning to London from the Middle East on a temporary basis.

Energy efficiency requirements add another issue for landlords when properties will need to reach EPC C by 2030.

On a recent Housing Unpacked episode, Louisa Sedgwick of Paragon Bank, said: “This particular change in legislation I think is going to be bigger and potentially more demanding (than the Renters’ Rights Act) because I don’t believe we’ve got the infrastructure to support it.”

House price predictions

Knight Frank’s latest report also highlights that its house price expectations have shifted lower in the near term.

Growth of 1.5% is forecast this year, followed by 3% in 2027 and 4% in 2028, down on earlier projections.

Borrowing costs have risen alongside the conflict in the Middle East, which has fed through into sentiment and market activity.

Swap rates have climbed and the five-year rate is now around 4%, compared with just under 3.5% before the conflict.

Longer-term forecasts for house prices have been revised upwards, and one of the assumptions is that there will be a change in government by 2029.

That government would be expected to bring in lower taxes and tighter spending.

As a result, house price growth of more than 5% a year is expected in mainstream and prime markets by 2030.