Rent growth will slow down – but remain higher than inflation

Rent price growth is set to slow down but will still outpace inflation, Hamptons reveals.

The estate agency is predicting that rents will rise by 4.5% in the final quarter of 2024 – and by the same amount next year.

It also says that rents will grow by 4% in both 2026 and 2027 to deliver a cumulative increase of 17% over the next three years.

While this is a big slowdown from the record-breaking growth seen in 2023 – rents will outpace projected house price growth of 12.5% over the same period.

The price slowdown is attributed to several factors, including lower mortgage rates, falling inflation and affordability pressures on tenants.

Landlords sell up and leave

Rents will also rise because there will be fewer homes to rent as landlords – particularly older investors – sell up and leave the sector.

Hamptons is also warning that rising costs for landlords, such as higher mortgage rates and increased stamp duty surcharges, will hit profits.

The Renters’ Rights Bill and other regulatory changes, such as EPC requirements, could further reduce rental property supply.

Hamptons is also forecasting a 3% rise in house prices next year, followed by 3.5% in 2026 and 2.5% in 2027.

Aneisha Beveridge, the firm’s head of research at Hamptons, said: “As the end of 2024 approaches, the mood of the housing market has shifted from trepidation to cautious optimism.

“Lower mortgage rates have been the principal catalyst for change, falling more rapidly than we expected.

“Even though an improving affordability picture, driven by lower mortgage rates and robust pay rises, looks likely to fuel price increases and transactions in 2025, higher rates for longer will weigh on long-term growth.”

‘Dampen long-term house price performance’

Ms Beveridge continued: “The combined effect of persistently higher interest rates and sluggish economic growth is likely to dampen long-term house price performance compared to previous cycles.

“It will also remain a barrier to homeownership for many would-be first-time buyers, limiting longer-term transaction numbers.

“While the future direction of interest rates seems to have been mapped out, the pace of this journey and its ultimate destination remains uncertain.”

She adds: “Changes to rate expectations remain the key risk to the housing market.

“But what seems more certain is that the London market is set to outperform the other regions next year as a new cycle begins.”

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