UK housing market: Rents outgrow house prices in England and Wales amid Summer Budget warning

Rental prices of homes in England and Wales have grown more than house prices for the first time in two years.

Rents across England and Wales reached a new record high at £789 in June, 1.4% higher than the £778 recorded in May and up 5.6% since June 2014.

The hike means last month was the first since July 2013 where rents rose more quickly than house prices for comparable properties, with this annual rate of house price growth standing at 4.5% over the 12 months ending June 2015.

Adrian Gill, director of estate agents Reeds Rains and Your Move, comments: "The pedal is pressed to the metal in the rental market. Not only have rents hit a new all-time record high – but we have never seen them rise so quickly.

"Growing wage packets and a strengthening economy mean that a greater number of tenants are able to afford higher rents. With such an overall shortage of housing in the UK, rental costs are primarily driven by the amount tenants are capable of paying.

"Rents have also decoupled from inflation. While record low inflation fuelled by falling oil prices might bring clothes or food within the range of tenants' purchasing power, it doesn't have much of an effect on the property market in the short term."

But Gill warned there could be a sting in the tale for tenants as landlords mull changes introduced by chancellor George Osborne in the Summer Budget that means Buy to Let owners will have their tax relief slashed.

"There may be new factors on the horizon too," he added. "In the wake of the Summer Budget's reduced assistance for landlords, we might see many aim to pass additional costs on to their tenants. If so, rents would receive yet another acceleration."

Annual rent rises in the east accelerated at a record pace to a new record high, increasing 13.8% over the 12 months to June 2015 to stand at £839.

It was the 15th consecutive month of accelerating rent rises in the region and goes alongside rapid growth in purchase prices in the east.

London showed the next strongest year-on-year growth in rents, with a 9.6% increase since June 2014, pulling rents in the capital up to an average of £1,241, a new record high. In third place but some distance behind, rental costs increased 2.2% year-on-year in the south-east to stand at £778 in June.

Due to a mild slowdown, rents in the south-east are still short of record levels. By contrast Yorkshire & the Humber is the third region to have witnessed a new record high in June, with an average monthly rent of £550.

On a monthly basis, London led the way with a 2.8% increase just between May and June, closely followed by the East with 2.4% month-on-month growth and the East Midlands at 1.5%. Over the same monthly period, rents fell in the South East (-0.2%) and the South West (-1.3%).