A forecast by Hamptons, the prominent lettings agency, has sent shockwaves through the British property market, predicting a substantial 25% increase in rental prices over the next four years. This projection dwarfs the modest 5.5% growth anticipated in house prices across the United Kingdom during the same period.
Hamptons’ prognosis suggests a change in the housing market’s trajectory, asserting that the decline in house prices will halt next year, followed by marginal rises in 2025 and 2026. However, when considering inflation, average property values in Britain are expected to decrease by nearly 10% between the commencement of 2023 and the conclusion of 2024.
In the realm of private rentals, a confluence of factors, including prolonged supply issues and escalating landlord expenses, will continue to exert upward pressure on rents. According to the agency, the average rent for newly let properties in Great Britain is projected to rise by 8.0% in Q4 2023, 7.0% in Q4 2024, and 5.0% in both Q4 2025 and 2026.
In particular, London is expected to experience rent hikes that surpass the national average, with increases of 9.0% and 8.0% projected for 2023 and 2024, respectively. Hamptons has sounded the alarm for investors in the capital, citing a combination of diminished yields and a growing reliance on financial backing, which will place additional strain on profitability.
Aneisha Beveridge, Head of Research at the agency, commented, “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 underscores the pivotal role that interest rates will play in determining rental prices, given that 68% of landlords possess buy-to-let properties with some form of financial backing. The agency forecasts a cumulative 25% surge in rents across Great Britain between 2023 and 2026, with the most significant increases anticipated in 2023 and 2024, as landlords transition from fixed-term deals to significantly higher mortgage payments.
This surge in rental costs is poised to elevate the average rent for a home in Great Britain to £1,550 per month, a staggering £333 increase compared to December 2022. Nevertheless, despite this rental growth, many landlords may find themselves substantially worse off than just a couple of years ago.
Hamptons anticipates that rental growth will be most pronounced in the North of England and London over the coming year. These regions are characterized by a higher prevalence of portfolio landlords, who are more likely to rely on some form of financial support. London, in particular, boasts the lowest yields on average in the country, leaving landlords with limited capacity to absorb mounting expenses.
Additionally, the looming spectre of the Renters Reform Bill is expected to further augment landlords’ costs, and the agency cautions that additional regulations may be on the horizon, irrespective of the outcome of the upcoming general election.
As Hamptons’ forecast reverberates throughout the housing market, both renters and landlords brace themselves for a period of significant change and economic adjustments.