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Growth in rent set to outpace house prices

Paloma Kubiak
Written By:
Paloma Kubiak

The increase in rent is expected to grow faster than house prices over the next five years.

Rent is expected to rise by 5% per year to 2027, while house prices are anticipated to grow by 4% over the five year period, according to trade body, the Royal Institution of Chartered Surveyors (RICS).

Its residential market survey for May revealed that the gap between rent growth and house price growth has been widening in recent months.

Meanwhile, it said there has been a slight drop-off in demand over the month, and a “generally flat trend” for agreed sales and instructions.

New buyer enquiries for May came in at -7%, down from the +8% previously which RICS said brings to an end a run of eight consecutive positive monthly readings.

The RICS survey is presented as a score between –100 and 100, with negative figures implying a decline, and positive reading suggesting an increase.

Looking forward, it noted that the outlook for sales has weakened in the face of a more challenging environment, but added that despite this, “prices are still expected to continue to rise”, even if the pace of growth is seen “moderating”.

The supply constraints are also adding to house prices continuing to be squeezed higher. Indeed, it said 73% of surveyors reported an increase in house prices during May, which is slightly down on the  previous 80% but “remains closely aligned with the average seen over the past six months or so”, RICS noted.

It added that all parts of the UK continue to see house prices moving upwards, with growth still exceptionally strong in Northern Ireland, Northern England and Wales. Meanwhile in London, the current net balance of +53% (slightly more moderate than +68% beforehand) remains well above the long run average of +12% for this measure.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Rocketing rents are already putting tenants under horrible pressure, and there’s every sign that the squeeze is going to intensify. Rent rises are expected to outstrip house prices over the next five years, as landlords sell up and tenant numbers boom.

“Landlords are packing up and clearing out of the market. Some feel we’ve reached the top of the market and are keen to capitalise on higher prices while they can. Others are worried about more legislation and higher taxes making renting less rewarding. In London in particular, some are moving into the Airbnb market where returns are more rewarding.”

Coles added that as several potential tenants are chasing each home, landlords are hiking rents and being pickier about who they accept.

“It leaves renters in a horrible position. They already spend a significantly larger chunk of their income on housing costs than their home-owning counterparts, and runaway rising bills from energy to petrol and food means they can’t afford to pay more to rent their current home. More and more are being forced to move, which is horrendously expensive in itself,” she said.

Coles added: “Meanwhile, for buyers and sellers, property prices kept rising in May. However, there were plenty of reports of buyers taking their time and considering their purchases more carefully. As a result, more sales were falling through, and in some cases, when the property went back on the market it fetched a lower price. One agent commented that the party is nearly over.”