Rents will rise 25 per cent over the next four years, outpacing the modest 5.5 per cent House price growth across Britain during the same period.
The prediction has come from Hamptons, the lettings agency, which says house price falls will stop next year followed by small rises in 2025 and 2026.
But Hamptons says that taking inflation into account, average prices in Britain will have declined by nearly 10 per cent between the start of 2023 and the end of 2024.
However in the private rental sector te build-up of long-term supply issues combined with rising landlord costs will continue to put pressure on rents.
“We forecast the average rent on a newly let property in Great Britain will rise 8.0 in Q4 2023, 7.0 per cent in Q4 2024 and 5.0 in both Q4 2025 and 2026” says the agency.
London rents are likely to rise faster than the all-Britain average in 2023 and 2024 by 9.0 and 8.0 per cent respectively.
A combination of lower yields and more landlords being reliant on finance will put added pressure on investor profits in the capital, Hamptons warns.
Agency research head Aneisha Beveridge says: “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.”
Hamptons says give that 68 per cent of landlords own a buy-to-let with some sort of finance, rents will primarily be set by where interest rates settle in the medium term.
“We forecast rents will rise by 25 per cent across Great Britain between 2023 and 2026 with the largest increases during 2023 and 2024 as landlords roll off fixed term deals and face considerably higher mortgage payments” it adds.
This will likely put the average rent of a home in Great Britain at £1,550pcm, £333pcm more than in December 2022. Despite this rental growth, many landlords will still find themselves materially worse off than a couple of years ago.
The agency anticipates that 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.
And it warns that 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.
