Hamptons has released its rental market forecast, predicting a 25% surge in rental prices between 2023 and 2026.
The bulk of the rental increases is projected to take place in 2023 (8%) and 2024 (7%), with 2025 and 2026 both expected to see rises of 5%.
London in particular is expected to see rents go up by 9% in in 2023, 8% in 2024, and 4% in 2025 and 2026.
BTL Insider has asked industry professionals what effect this will have on the sector, and if it could attract landlords back into the space.
Peter Williams, CEO at Propp, doesn’t believe rents will increase across the country as Hamptons predicts.
However, should this happen, he expects it to lead to more landlords to return to the PRS.
“Will this drive more landlords back? Yes, if rents really do increase by that much. However, for me, the biggest driver of any future return to the market will be interest rates coming down and calming of the money markets.
“Given the rapid increase tenants have experienced recently, there will be a tipping point where tenants, who typically are much worse off than homeowners, aren’t going to be able to swallow many more double-digit increases.”
Mike Cook, chief mortgage officer at MFS, said: “The fact that rents are forecast to rise so significantly is hardly surprising when one considers the impact that the Bank of England’s interest rate hiking cycle has had on landlords’ mortgage repayments.
“In many instances, landlords have been left with little choice but to increase their rents in order to meet their own financial obligations, while others have been forced to consider how they manage their portfolios.
“Therefore, we should not see higher rents as landlords profiteering or being opportunistic — quite the contrary — with many landlords doing all they can to avoid increasing rents during the cost of living crisis.”
Mike added that such rental rise predictions are unlikely to play a critical role in tempting investors into or keeping them in the BTL market.
“There are longer-term issues relating to taxation, mortgages, regulation and reform that are affecting people's views on BTL investment, and the fact that rents are likely to go up in the years to come will not act as a single solution to these other factors, but it will help,” he elaborates.
“With uncertainty continuing to reign supreme in the current economic landscape, lenders must double down on their commitments to provide certainty and flexibility to allow these investors to meet the demand for rental properties; whether that be through rate freezes or more lenient ICR calculations, lenders can contribute to a more equitable PRS for landlords and renters alike.”
Roger Morris, director of sales and distribution at Tandem Bank, shared his view as a landlord: "This forecast of a 25% rise in rents across Great Britain from 2023 to 2026 is unprecedented.
"While these rate increases may seem promising on paper, there are several complex factors to consider.
“For any landlord entering the market, especially higher-rate taxpayers, staying below the 60% LTV threshold is crucial.
“Approximately 60% of the 4.8 million properties in the BTL market are unencumbered, offering better profitability due to the current high interest rate environment — some landlords might be enticed to capitalise on this and purchase additional properties with a relatively low LTV.
“However, we must consider the sustainability of these rent increases; the financial burden on hard-working families to maintain these payments is a real concern.
“Several negative factors, such as reduced mortgage interest tax relief and increasing service charges, affect landlords' profitability — additionally, the eviction process can be lengthy and costly if tenants default on payments.
“While the short-term prospects for BTL properties in the right areas appear promising, there are long-term uncertainties and challenges that landlords must navigate.
"The market is evolving, and careful consideration of all factors is essential for both landlords and tenants."
Matt Lawrence, business development manager at Rainstone Money, added: “Interest rates have risen in the past year, [and] this coupled with the lack of rent increases and drop in rental yields has impacted leverage and has seen a lot of landlords sell their properties — this has generally been landlords which have a small property portfolio and have not been able to retain the property due to finances.
“The usual model for landlords is to leverage the property and keep buying properties to grow it further, but this has had to be adapted in recent years.
“Over the next three years with the rents due to increase at a higher level than property prices, we could see more landlords come back or enter into the property market, and existing landlords being more active.”
