Renters face 25% increase over next 3 years as landlords also grapple with increased costs

Rents are forecast to rise as much as 25 per cent across Britain between 2023 and the end of 2026. By contrast, house prices are expected to record a more modest 5.5 per cent growth over the same period.

The analysis comes from Hamptons estate agency, which says that whilst tenants are facing cost-of-living pressures, landlords are also facing various cost pressures that are causing the latter to quit the rental market.

Over the same time period, Bank of England forecasts predict salary growth of only 15 per cent.

The rent increases stem from a build-up of long-term supply issues as well as rising landlord costs.

The prediction comes as it was already reported last month that rent rises across Britain were at their highest levels since 2016. With fewer properties available to rent, costs have been pushed up for renters.

In the year to July, renters have already seen an uptick in rental bills of 5.3 per cent on average. According to this new data, the trend does not seem likely to abate in the next few years.

The latest predictions by Hamptons come as the sector gets to grips with the new Renters Reform Bill currently going through Parliament and expected to become law in October 2024.

The bill brings in more protection and benefits for private tenants by stipulating a host of new rules for landlords, letting agents and tenants themselves. However, by stipulating more conditions for landlords to meet and according to some, associated costs, the bill may have the unintended consequence of reducing the number of landlords and potentially, the number of available rental properties.

However, Hamptons opines that the bill will also have the effect of consolidating and professionalising the sector, with fewer landlords handling bigger portfolios on average.

The most salient feature of the bill is restrictions on evictions of tenants. The bill will remove Section 21 "no-fault" evictions, which currently allow landlords to evict tenants without giving a reason and usually without involving the courts.

Under the new bill, landlords can only evict by issuing a section eight notice based on a prescribed ground for eviction, and present evidence in court showing why they should regain possession of the property.

PayProp, a residential property management software firm, recently surveyed letting agents who work with landlords. More than 96 per cent believed that the renters (reform) bill would lead to more landlords leaving the market.

Furthermore, 86 per cent of those surveyed anticipated rent increases.

Recent reports from estate agency Savills also suggest that landlords are already quitting the market.

Aneisha Beveridge, head of research at Hamptons, said: "Rents will go up as landlords — who are being hit by higher borrowing and servicing costs — seek to pass these on to tenants. The cost of living squeeze will act as a constraint on increases, of course. But interest rate hikes will make it trickier for would-be first-time buyers who are renting to leave the sector, adding to demand."

Delving into the factors behind rent increases, Beveridge further stated: "There's a strong argument that the Bank of England's quest to quell inflation has hit the rental sector harder than any other part of the housing market. A build-up of long-term supply issues combined with soaring landlord costs is putting upward pressure on rents. And it's hard to see any of these pressures receding any time soon, which is why we expect rents to continue rising over the next few years."

High demand from tenants whilst landlords reduce the number of available properties is one of the key reasons behind the rent increase.

Competition among renters is so intense that there are 20 requests to view each available property, according to recent figures commissioned by the BBC from property portal Rightmove, up from six in pre-pandemic 2019.

Ben Twomey, chief executive of rental campaign group Generation Rent, said the Government's response to the cost of living crisis was "leaving tenants behind".

"While so many are suffering at the moment, it is renters who are facing a tougher situation across the board. We get very little notice of large rent increases, which makes it difficult to plan our finances, while support through the benefits system has failed to keep up with rents, and we can be evicted with just two months' notice."

He continued: "In comparison, mortgage holders coming off fixed rates have more time to plan, they have the option of switching to interest-only arrangements to stay afloat, and banks have been asked to give borrowers more time before starting repossession proceedings."

Currently, the monthly mortgage costs a first-time buyer and renter pay are roughly similar.