Rents to increase 16%-22% in 5 years

Savills has forecasted that UK rents will rise by an average of 16.5% by the end of 2020. What’s more, rents in London are expected to rise by 22.8% over the same period.

In its annual five-year forecast, the agent says that rental availability is already so stretched for many households, rental growth will in effect be held back by affordability.

Private-rented costs

The agency says that households in the private rented market already pay more of their income than those living in other sectors. Many are reliant on housing benefit to make the tenure more affordable, thus reducing the growth of rents if they are to remain affordable for tenants.

‘Rental markets that are heavily dependent on housing benefit tenants such as some of the seaside towns along the south cost and parts of the northern urban belt will come under renewed pressure due to government policy (our rental forecasts are for non-housing benefit dependent tenancies,’ said a Savills spokesperson.[1]

Savills predicts that the traditional rental demographic of sharers and young professionals looks set to continue to grow, as the cost of buying restricts the total number able to make the move into homeownership. However, these groups are likely to benefit from the predicted wage recovery, which will drive the majority of rental growth in the coming years.

Rents to increase 16%-22% in 5 years

Warning

This said, Savills warns that in some high demand/low supply markets, more people may live in larger household groups. As a result, larger properties could be in higher demand and produce more rental growth.

Like many other industry members, Savills is warning that a cap on mortgage interest payments will greatly reduce the profitability of buy-to-let investment a considerable number of landlords.

‘Over five years we expect the cash surplus [profit] on the average buy to let investment to fall from over £2,500 to under £950. This will cause some highly geared buy to let investors to rationalise their portfolios and limit the ability of a larger number of others to expand,’ says the agency.[1]

[1] https://www.lettingagenttoday.co.uk/breaking-news/2015/11/rents-to-rise-16-to-22-over-next-five-years–forecast