According to leading estate agent group, Hamptons, rents are expected to rise by nearly five times more than house prices by 2026. Hamptons predicts a 25% increase in rents between the start of this year and 2026, outpacing the 5.5% average growth in house prices during the same period. The combination of long-term rental home supply issues and rising landlord costs being passed onto tenants will continue to put pressure on rents. Additionally, higher mortgage rates will weigh heavily on house prices. Higher interest rates have had a greater impact on increasing rents rather than decreasing house prices, thus far.
Halifax’s latest figures show that the typical homeowner has already experienced a £14,000 decrease in the value of their property over the past year. Meanwhile, the UK average rent is currently at £1,261, a 10.3% increase compared to the same time last year, according to the HomeLet Rental Index. Hamptons analysis suggests that there will be significant regional variations in house prices. For example, it predicts that house prices in London will rise by 11.5% by the end of 2026, while prices in Wales will remain unchanged. However, rising rents are expected to be felt across the UK, not just in London.
Based on the Office for National Statistics (ONS) House Price Index, which relates to official sold prices, Hamptons expects average house prices to fall by 2.5% by the end of the year in nominal terms. Adjusted for inflation, it anticipates an 11% decrease in house prices between 2022 and 2024. In 2024, as mortgage rates gradually decline and affordability improves with incomes rising faster than inflation, some individuals who delayed moving in 2023 are likely to proceed with their plans. Prices are expected to remain flat by the end of 2024 before starting to increase, with an average gain of 3% by the end of 2025 followed by a 5% rise in 2026.
Aneisha Beveridge, head of research at Hamptons, stated that if current financial market expectations are correct, the cost of a two-year fixed-rate mortgage will fall to around 4.75% in 2026, which is likely to be the new normal. Hamptons predicts that this will fuel price growth across the UK by the final quarter of the year. London is expected to be the first region to show a turnaround, with 2025 marking the start of a new property market cycle. It is anticipated that London will outperform all other regions, with a 5% annual price growth in 2025, followed by 7.5% annual growth in 2026. Beveridge added that despite rising rates and the cost-of-living squeeze on many households, the predicted house price crash has not materialised. Instead, a minor price fall is expected in 2023 followed by a slower recovery as households adjust to higher rates. Hamptons’ forecast aligns with the forecasts of Capital Economics, an independent economic research business, which also expects house prices to stop falling next year.
However, not all industry commentators agree with these forecasts. Charlie Lamdin, founder of property website BestAgent, expects house prices to reach their lowest point on average in mid-2025. Lamdin believes that prices will bottom out at around one-third off their 2022 peaks, on average, with regional variations ranging from a 15% to 50% drop in the worst-case scenarios. Lamdin attributes these large price falls to the struggling economy in the absence of a major stimulus, but he may revise his expectations if a stimulus were to materialize. Lamdin suggests that given the lag in reporting the effects of interest rate changes on house prices and the expected delay in the base rate decline until 2025, house prices will continue to fall for at least the next 18 months, amid more corporate failures and rising unemployment.
In terms of rent, although Hamptons forecasts slower rental price growth compared to the double-digit annual rises of the past two years, it expects rents to continue rising for the next few years. The shortage of rental homes and increasing landlord costs will continue to pressure rents, despite affordability challenges for tenants. According to the estate agent, there were 43% fewer homes available to rent across the UK in July compared to July 2019. Hamptons predicts an 8% increase in the average rent of a newly let property in the UK by the end of 2023, followed by 7% in 2024 and 5% in both 2025 and 2026. Overall, rents are projected to rise by 25% in the UK from 2023 to 2026. The largest increases are expected in 2023 and 2024 as landlords face higher mortgage payments after fixed-term deals expire. Hamptons anticipates that the average rent for a home in Great Britain will reach £1,550 per month by the end of 2026, which is £333 per month more than in December 2022. London rents are likely to increase slightly more than the UK average in 2021 and 2024 due to lower yields and more landlords feeling the impact of higher mortgage rates.
Aneisha Beveridge commented that the Bank of England’s efforts to control inflation have hit the rental sector harder than any other part of the housing market. The combination of long-term supply issues and increasing landlord costs is driving rent increases, with no immediate relief in sight. Therefore, Hamptons expects rents to continue rising over the next few years.
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