Rents will continue to fall until 2022 as tenants’ reduced incomes and less stock continues to impact the sector.
Hamptons International says the UK will see a modest 1% drop in rents this year with the same decline in 2021, although it predicts a 2.5% rise in 2022 in line with house prices.
The estate agency believes tenants’ incomes have fallen more than homeowners’, while the increase in first-time buyer numbers is also putting downward pressure on demand for rented accommodation, coupled with the fact that young people are living with their parents for longer.
Growth in the sector has levelled off in the last few years as more people in the 25-34 age group climb onto the housing ladder, and Hamptons doesn’t expect any growth until 2023 because lenders are gradually reintroducing higher loan to value mortgages which will limit demand.
But Hamptons International says low interest rates will continue to mean returns from buy-to-let will outstrip cash in a savings account, supporting investment levels in the sector.
The number of homes available to let is down in every region except London, with rental growth set to remain concentrated in the Midlands and the North where purchases by landlords are still at historically low levels.
Hamptons says a continued reluctance to invest from landlords, lowering the supply of rental homes, is one reason why the sector hasn’t yet bounced back, to the surprise of many observers.
It adds: “The outlook for the rental market depends on how fast the economy can recover and whether it can make up lost ground.”