A business analyst has given an interesting interpretation of the soaring rental market - and says it keeps the wider sales sector buoyant, too.
Sarah Coles of business consultancy Hargreaves Lansdown says the high rents of the past year - up by an average 11 per cent according to Zoopla - is “the hidden string” holding up the sales sector.
“Enormous pressure from runaway bills, rises in mortgage costs, and big drops in consumer confidence has historically meant house prices started to weaken. And while nobody is ruling it out eventually, for now they are riding high” says Coles.
“Rising rents are the missing piece of the puzzle for those trying to understand how house prices are still rising so quickly. Rents have bounced back from falls during the pandemic, and are up 11 per cent in a year. London, which suffered particularly during the race for space, has bounced back even harder – with rents up 15 per cent.
“Rising rents knock increasing mortgage costs into a cocked hat, so moving from a rental property into an equivalent home with a mortgage will see your monthly costs fall.”
Coles says that while rising rents make it harder to save for a first property, it also means there’s nothing to be gained from putting off a property purchase.
“A new let in London will cost you over £20,000 in rent over the next 12 months, which is money that may as well be paying off your mortgage. Meanwhile, although house prices may well rise more slowly in the coming months, we’re not seeing any widespread conviction that house prices will actually fall – so you could still see property get more expensive while you wait” she tells renters.
There’s also a hidden benefit for mortgage holders from inflation, she says, because it erodes the value of their debt. Anyone borrowing this time last year will have seen inflation eat up seven per cent of the real value of their debts – even before repayments are factored in.
The pressure on rents shows no sign of abating.
Landlords continue to sell up in order to capitalise on higher house prices, so there are fewer properties left for the growing number of tenants.
The latest RICS report highlighted that in some areas there are 10 tenants chasing every property.
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