Rising rents and slow house price growth amid economic uncertainty

Rising rents and slow house price growth amid economic uncertainty

0:06 AM, 26th November 2024, About a month ago

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Growing uncertainty around the Renters’ Rights Bill has led to more landlords leaving the market and rents to rise, according to Knight Frank.

According to the estate agent, rents could jump by 17.6% over the next five years, between 2025 and 2029.

However, Knight Frank’s housing market forecast suggests that house prices are expected to grow by just 2.5% in 2025.

Affordability pressures for tenants

In Prime Central London and Prime Outer London, rents are expected to grow by 3.5% in 2025, climbing further to 4% by 2027 — up from earlier forecasts of 3% and 3.5% made in August.

Tom Bill, head of UK residential research at Knight Frank, says despite landlords leaving, the impact on supply is expected to be limited.

He said: “A number of landlords have already sold due to a succession of tax and legislative changes such as the Renters’ Rights Bill in recent years, so we are not expecting a further material drop in supply.”

Mr Bill adds: “We believe slowing wage growth will increase affordability pressures for tenants, which means rental value growth is expected to calm down from the heights of the pandemic, a period that was also distorted by a lack of supply.”

Pressure on house prices

Knight Frank’s latest housing market forecast shows that higher mortgage rates are putting pressure on house prices.

The estate agent now expects UK house prices to rise by 2.5% in 2025, 3% in 2026, and 3.5% in 2027, down from earlier predictions of 3%, 4%, and 5%. Over the next five years, total growth is expected to be 19.3%, compared to 20.5% three months ago.

Growth expectations for Greater London have also changed, with prices predicted to rise by 15.3% between 2025 and 2029. Affordability pressures in the capital are expected to remain higher than in other parts of the country.

Mr Bill says Labour’s Budget will take time to take effect on the property market.

He said: “In simple terms, we don’t yet know if the Budget will work and therefore by how much rates could fluctuate in the years ahead.

“However, we have seen a jump in borrowing costs since the Chancellor set out her economic plans and expect more downward pressure on prices and transaction volumes in the short term. As a result, mortgage lenders are reluctantly pushing rates higher, which will eventually feed through into house prices.”


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