Cornerstone Tax chairman David Hannah comments on new forecasts for the UK's housing market from estate agency Hamptons.
A new report from Hamptons has revealed that UK rents are expected to rise by 25% over the next four years, pushing the average rent to£1,600 a month by the end of 2026.
The data also shows house prices are set to fall by 5% over the same period due to high-interest rates making homeownership unaffordable.
The predicted rise in rental prices over the next four years can largely be blamed on the Bank of England’s (BoE) quest to squash inflation
According to Hamptons, the average rental price for newly leased properties in Britain is projected to increase by 8% throughout 2023.
Furthermore, this upward trend is expected to continue, with an additional 17% rise forecasted by the end of 2026.
This surge is attributed to a growing number of landlords transitioning from fixed-term mortgages to mortgages with considerably higher rates of interest.
The current average five-year rate is now 6.19%, compared to 2.64% in December 2021.
In July, the supply of available rental homes across Britain dwindled by 43% when compared to the same month in 2019.
This decrease in supply means that landlords can negotiate higher rental rates with reduced tenant turnover risk.
The predicted rise in rental prices over the next four years can largely be blamed on the Bank of England’s (BoE) quest to squash inflation, which has ultimately put immense pressure on interest rates on mortgages that landlords are now passing down to their tenants.
Hannah fears that if the BoE announces a further interest rate hike in September, it could fuel rental prices to spiral even higher.
Rent prices are going up because landlords’ costs, particularly as a result of rising interest rates, are increasing.
However, this is not the whole picture as there is still a chronic undersupply of housing in the UK in popular locations. For example, rent rises in London post-pandemic have been as much driven by a lack of available properties as they have been by inflationary pressure.
The situation has been particularly exacerbated for houses in multiple occupation (HMO) landlords – these are landlords who typically include the costs of energy, heating, and other bills into the rent.
The soaring increase in energy costs has, as a result, had to be factored into the rent for these types of properties.
Accordingly, rent rises in these types of properties exceed inflation by a considerable margin.
The rental market is filled with uncertainties at the moment, with rising rents making it less attractive from a renter’s standpoint and rising house prices making it less desirable for buy-to-let landlords to grow their portfolios.
Our research shows that many landlords were not prepared to deal with the current obstacles facing the rental market as 1-in-5 say they became landlords without the sufficient knowledge needed and have lost thousands as a result."
