Rents predicted to rocket 25% by 2026

Rents predicted to rocket 25% by 2026

10:15 AM, 11th September 2023, About 11 months ago 4

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A housing market forecast is offering an alarming prediction that rents could rocket between 2023 and 2026 by 25%.

The prediction is being made by estate and lettings agents Hamptons which says that both London and Great Britain tenants will see rents rise by the same figure.

It says that this year in Great Britain – excluding London – rents will rise by 8%, and by 7% next year.

In 2025, rents will increase by 5% and by the same amount in 2026.

In London, rents will rise by 9% this year, 8% next year, 4% in 2025 and 4% in 2026.

‘Bank of England’s quest to quell inflation has hit the rental sector’

Aneisha Beveridge, the head of research at Hamptons, said: “There’s a strong argument that the Bank of England’s quest to quell inflation has hit the rental sector harder than any other part of the housing market.

“A build-up of long-term supply issues combined with soaring landlord costs is putting upward pressure on rents.

“And it’s hard to see any of these pressures receding any time soon, which is why we expect rents to continue rising over the next few years.”

Average rent for newly let properties in Great Britain

According to Hamptons, the average rent for newly let properties in Great Britain rose by 9.9% in July – the 27th consecutive month of rental growth exceeding 5%.

Despite the affordability challenges being faced by tenants, the long-running and increasing scarcity of homes to rent, coupled with escalating expenses for landlords, will continue pushing rents up.

The firm says that in July, there were 43% fewer rental homes available in Great Britain compared to the same month in 2019.

And since 68% of landlords in the private rental sector ((PRS) own buy to let properties financed in some way, the level of interest rates will play a pivotal role in determining rents.

Landlords will come off fixed term BTL mortgage deals

Hamptons says that the bigger rises for this and next year will happen because landlords will come off fixed term BTL mortgage deals and onto ‘considerably higher’ mortgage payments.

As a result, the average monthly rent for homes in Great Britain is projected to reach £1,550, a £333 increase compared to December 2022.

Despite this surge in rents, many landlords may still find themselves materially worse off than a couple of years ago.

‘Rental growth will be led by the North of England’

Ms Beveridge said: “We think rental growth will be led by the North of England and London over the next year.

“These are places where larger portfolio landlords, which are more likely to be reliant on some form of finance, are most active.

“London is also the lowest yielding region in the country on average and so landlords here have less ability to absorb higher costs.”

She added: “However, steeper borrowing costs are not the only issue, with substantial regulatory reforms on the horizon.

“The Renters Reform Bill is likely to further add to landlords’ costs, and more regulation may well be in the pipeline whichever party wins the general election.”

House prices across Great Britain will fall 2.5%

Hamptons is also predicting that house prices across Great Britain will fall 2.5% in the final quarter of 2023 – or, in real terms, a 7.4% annual fall in house prices.

Using the Office for National Statistics (ONS) House Price Index, the firm says that  –  house price falls will stop next but there will be zero price growth in the final quarter of the year.

By the end of 2025, prices will rise by 3% and by 5% in the final quarter of 2026.

The firm’s data shows that when taking inflation into account, average prices will have fallen by nearly 10% between the start of this year and the end of 2024.

However, 2025 will see a new property market cycle begin with London outperforming all other regions for the first time since 2015 with 5% annual price growth.

Overall, London will see the strongest growth between 2023 and 2026 of 11.5%, with prices in Wales likely to remain flat.

House price crash hasn’t materialised

Ms Beveridge said: “Despite rising rates and the cost-of-living crunch catching many households off guard, it’s becoming increasingly clear that the house price crash that some forecasters envisioned hasn’t materialised.

“Rather, we expect a minor price fall in 2023 followed by a slower recovery over subsequent years as households adjust to an era of higher rates.

“This will be more akin to the U-shaped downturn of the early 1990s than the V-shaped crash and subsequent speedy recovery in 2008.”

She adds: “On paper, the house price falls we forecast are minor in nominal terms but high inflation for other goods and services means that in real terms, the average price of a home will have fallen around 11% between 2022 and 2024.

“This essentially reflects ‘the correction’ caused by higher rates.

“It’s also why we expect prices to rise again in both real and nominal terms from 2025 as rates fall to their new normal and a new housing cycle begins.”


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Teessider

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11:49 AM, 11th September 2023, About 11 months ago

Rents will rise because of rising interest rates, increased (PRS only) regulation and a punitive and vindictive Conservative tax regime.

Increased immigration will stoke demand and provide upwards pressure on rental prices.

If they rise in line with inflation, that should be considered normal.

Paul Essex

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12:43 PM, 11th September 2023, About 11 months ago

In addition the average rent will rise quickly as low rent properties leave the market exaggerating the headline figure.

Teessider

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21:14 PM, 11th September 2023, About 10 months ago

Reply to the comment left by Paul Essex at 11/09/2023 - 12:43
That’s a good point. As with any set of statistics, it’s important to understand how the data was collected.

Asking tenants if rents are too high will probably garner a very different response if compared to asking landlords the same question. Neither answer will provide much value to a reasoned argument but each would suit the author’s narrative.

Crouchender

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22:09 PM, 11th September 2023, About 10 months ago

Reply to the comment left by Teessider at 11/09/2023 - 21:14
Baseline rents have to go up significant as I cannot believe Labour will not choose the populist option to control rents. They are so far in polls that articles like this just add fuel to the fire to rent cap. Especially now Red Rayner is at the helm.

It is really easy for them as they could raise CGT to 40/50% immediately BUT Property CGT % would go down if LLs kept the asset longer (10 years???) so preventing short term selling and keeping hold of the PRS stock they have left when they win next year.

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