Property rents set to rise 25 percent by 2026

In a recent report released by Hamptons estate agents, a significant uptick in UK rental prices is on the horizon, with expectations of a 25% surge over the next four years.

This meteoric rise is projected to propel the average monthly rent to £1,600 by the close of 2026. Concurrently, the data paints a contrasting picture for the housing market, with house prices anticipated to decline by 5% over the same period, largely attributable to soaring interest rates rendering homeownership financially unattainable for many.

According to the Hamptons report, the average rental cost for newly leased properties across Britain is poised for an 8% uptick in 2023. This trajectory is expected to persist, culminating in a further 17% escalation by the conclusion of 2026. The driving force behind this surge is the increasing number of landlords migrating from fixed-term mortgages to higher interest rate mortgages. Notably, the current average five-year rate now stands at 6.19%, a stark contrast to the 2.64% figure recorded in December 2021. Further compounding the situation, the supply of available rental homes in Britain dwindled by a substantial 43% in July when juxtaposed with the same month in 2019. This reduced supply has enabled landlords to negotiate higher rental rates with diminished concerns about tenant turnover.

In response to these findings, David Hannah, the Group Chairman of Cornerstone Tax, a leading authority on property tax matters in the UK, has weighed in on the state of the rental market. David emphasizes that the impending rental price surge over the forthcoming four years can largely be attributed to the Bank of England’s unrelenting efforts to combat inflation, which have subsequently exerted immense pressure on mortgage interest rates. Landlords, grappling with these elevated costs, are passing them on to their tenants. There is growing apprehension that a potential interest rate hike announcement by the Bank of England in September could further fuel the spiralling rental prices.

David discusses the current landscape of the rental market: “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.

“I think 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.”