Hamptons, a leading estate agent group, forecasts that rents will increase by nearly five times more than house prices by 2026. It predicts a 25% rise in rents between 2023 and 2026, outpacing the average 5.5% growth in house prices during the same period.
Rising Rents and Falling House Prices
The increase in rents is primarily driven by the long-term supply issues in the rental market and rising landlord costs being passed on to tenants. On the other hand, higher mortgage rates continue to put downward pressure on house prices. Halifax’s latest figures reveal that the typical homeowner in the UK has already seen a £14,000 decrease in the value of their property over the past year.
According to the HomeLet Rental Index, the average rent in the UK has reached £1,261, showing a 10.3% increase compared to the previous year. Hamptons’ analysis also suggests that there will be significant regional differences in house prices. For example, it predicts an 11.5% increase in house prices in London by the end of 2026, while prices in Wales are expected to remain unchanged. However, rising rents are likely to be a common trend across the UK, not just limited to London.
House Price Forecasts
Hamptons’ house price predictions are based on the Office for National Statistics (ONS) House Price Index, which reflects official sold prices. The agency expects average house prices to fall by 2.5% by the end of this year in nominal terms. Adjusted for inflation, it foresees house prices falling by 11% between 2022 and 2024.
Hamptons predicts that in 2024, as mortgage rates gradually decrease and affordability improves with rising incomes, people who have delayed property purchases in 2023 will decide to proceed. As a result, prices will remain flat by the end of 2024 and then start to rise. The agency forecasts a 3% average increase by the end of 2025, followed by a 5% rise in 2026.
The head of research at Hamptons, Aneisha Beveridge, explains that if the current financial market expectations are accurate, the cost of a two-year fixed-rate mortgage will fall to around 4.75% in 2026. This decrease in mortgage rates is expected to fuel price growth across the UK by the final quarter of that year.
A Turnaround in London
Hamptons predicts that London will be the first region to start a new property market cycle, as early as 2025. It forecasts 5% annual price growth in 2025, followed by 7.5% annual growth in 2026. Beveridge believes that despite the impact of rising rates and the cost-of-living crunch, the anticipated house price crash has not materialized. Instead, there will be minor price falls in 2023, followed by a slower recovery over the following years, similar to the U-shaped downturn of the 1990s.
Hamptons’ analysis aligns with the forecasts of Capital Economics, an independent economic research business, which also expects house prices to stop falling next year. Capital Economics senior economist Andrew Wishart predicts that house prices will reach their lowest point between July and September 2024, coinciding with a material decrease in mortgage rates.
However, not all industry commentators share the same view. Charlie Lamdin, founder of property website BestAgent, expects house prices to reach their lowest point on average in mid-2025. Lamdin anticipates significant regional variations, with falls between 15% and 50% in the most extreme scenarios. His predictions are influenced by his belief that the economy will struggle indefinitely unless there is a major stimulus.
Future Rental Market Trends
Although Hamptons predicts that rental price growth will be slower than the double-digit annual rises experienced in recent years, it still expects rents to continue rising. Affordability pressures for tenants, along with a shortage of rental homes and increasing landlord costs, will continue to put upward pressure on rents.
According to Hamptons, there were 43% fewer homes available for rent in the UK in July 2021 compared to the same month in 2019. The agency forecasts an 8% increase in the average rent on newly let properties by the end of 2023, followed by 7% in 2024, and 5% in both 2025 and 2026, respectively.
Overall, Hamptons predicts a 25% increase in rents across the UK between 2023 and 2026, with the largest increases expected in 2023 and 2024 when landlords move away from fixed-term deals and face higher mortgage payments. This forecast would put the average monthly rent in Great Britain at £1,550, an increase of £333 compared to December 2022.
London rents are expected to rise slightly more than the UK average, driven by lower yields and the impact of higher mortgage rates on landlords.
Hamptons’ Aneisha Beveridge concludes that the Bank of England’s efforts to control inflation have hit the rental sector harder than other parts of the housing market. She believes that the combination of long-term supply issues and rising landlord costs will sustain upward pressure on rents for the next few years.