Rent Predicted to Surge: Four Times Faster Than House Prices in Coming Years

In recent weeks, we’ve been sharing news that has raised concerns among landlords. However, in this latest development, there is a glimmer of hope for buy-to-let landlords and those considering venturing into the rental property market. The forecast suggests that rents could experience a significant upswing, outpacing house price growth by more than fourfold between the end of 2022 and the end of 2026. In this article, we delve into the details of this forecast and what it means for landlords and prospective investors.

Rapid Rise in Rents

The forecast from estate and lettings agent Hamptons paints a picture of rents across Britain surging by a staggering 25% over a four-year period. In contrast, house prices are expected to witness a more modest growth of 5.5% during the same timeframe.

As mortgage rates gradually decrease and households experience real income growth, Hamptons anticipates that the decline in house prices will come to a halt in 2024, with a resurgence in growth projected for 2025. This shift is seen as the beginning of a new housing market cycle.

Market Activity and Mortgage Rates

The property services firm expects just under a million house sales to occur across Britain in 2023, a decline from the 1.2 million completions recorded the previous year. However, with slightly lower mortgage rates and improved affordability forecasted for 2024, it predicts a rebound with 1.1 million completions.

Long-Term Supply Challenges and Rising Costs

Despite the positive outlook for house prices, the rental market is poised to face persistent challenges. A combination of long-term supply issues and increasing landlord costs will exert pressure on rental rates. This pressure is particularly pronounced in London, where lower rental yields and heightened reliance on finance will impact investor profits.

Click here to read more about house price asking price drops and what they potentially mean for you…

The Outlook and Recovery

Aneisha Beveridge, Head of Research at Hamptons, suggests that the housing market’s trajectory will resemble the “u-shaped” downturn experienced in the early 1990s, rather than the rapid “v-shaped” crash and recovery witnessed in 2008. She emphasizes that while the forecasted house price drops might seem nominal, adjusting for inflation, the average home price will have fallen around 11% from 2022 to 2024 due to higher interest rates. This correction sets the stage for a future rise in both real and nominal terms from 2025 onward.

Regional Variations

Hamptons’ forecasts also reveal regional disparities in house price growth. The North East of England is anticipated to experience robust house price growth of 8.5% by the end of 2026. In contrast, Wales is predicted to witness overall stagnation in house prices, with growth standing at 0.0%. Factors such as recent strong price growth and housing affordability influence these regional variations.

Here are Hamptons forecasts for house price growth in percentage terms over the four years between the end of 2022 and the end of 2024:

• London, 11.5%
  
• East of England, 9.0%
  
• South East, 9.5%
  
• South West, 5.5%
  
• East Midlands, 5.0%
  
• West Midlands, 4.0%
  
• North West, 1.5%
  
• Yorkshire and the Humber, 1.5%
  
• North East, 8.5%

Summary:

In a departure from recent concerns for landlords, the latest forecast from Hamptons suggests that rents in the UK could surge by 25% over the four years between 2022 and 2026, significantly outpacing the growth in house prices, which is expected to be a modest 5.5%. This projection is driven by declining mortgage rates, real income growth, and the anticipation of a new housing market cycle starting in 2025. However, the rental market may continue to face challenges due to long-term supply issues and increasing landlord costs, especially in London.

The housing market’s trajectory is expected to resemble a “u-shaped” downturn, with a slow recovery, as households adjust to higher rates. Regional variations also play a role, with the North East showing strong house price growth while Wales experiences stagnation. These insights are derived from a thorough analysis of data from the Office for National Statistics (ONS) and the Bank of England. For buy-to-let landlords and potential investors, this forecast offers a ray of hope in an ever-evolving property market.

A word from us…

At Intra Capital Estates, we understand the complexities of being a landlord and are committed to supporting landlords in navigating these changes. Our team of experienced professionals is here to assist you with expert advice, tailored solutions, and comprehensive property management services.

If you have any questions or would like to learn more about the current housing market, or our range of services, we invite you to get in touch. Our dedicated team is ready to address your inquiries and provide the assistance you need to thrive in the evolving rental landscape.

Stay informed, stay proactive, and let Intra Capital Estates be your trusted partner in the ever-changing world of property management.

Please note that the information provided in this blog post is intended for general guidance purposes only and should not be considered as legal advice. Visit gov.uk for more information.