Higher interest rates have put greater upwards pressure on rents
Rents are predicted to rise by 25% over the next four years, outpacing house price growth in the same period by more than four times, research by residential estate agent Hamptons has revealed.
While house prices are still forecast to increase by 5.5%, Hamptons said higher interest rates have so far put greater upwards pressure on rents than they have downward pressure on house prices.
The average rent on a newly let property in Great Britain rose by 9.9% in July, – the 27th consecutive month in which rental growth has exceeded 5%. There were also 43% fewer homes available to rent across Great Britain in July than the same month of 2019.
This shortage of rental homes, combined with rising landlord costs, would continue to put pressure on rents, Hamptons said, pointing out that as 68% of landlords owned a buy-to-let with some sort of finance, rents would primarily be set by where interest rates settled in the medium term.
“We forecast rents will rise by 25% 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,” Hamptons stated in its latest Housing Market Forecasts.
“This will likely put the average rent of a home in Great Britain at £1,550 per calendar month (pcm), £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.”
According to Hamptons, rental growth will be highest in the North of England and London over the next year as these are places where larger portfolio landlords, which are more likely to be reliant on some form of finance, are most active. It added that in London – the lowest yielding region in the country on average, landlords have less ability to absorb higher costs.
Hamptons, however, pointed out that steeper borrowing costs were not the only issue, with substantial regulatory reforms on the horizon and the Renters Reform Bill likely to further add to landlords’ costs.
“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,” commented Aneisha Beveridge (pictured), head of research at Hamptons. “A build-up of long-term supply issues combined with soaring landlord costs is putting upward pressure on rents.
“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.”
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