Many landlords will find themselves materially worse off by 2026, despite rents being forecast to rise by 25%.

Hamptons reports that the average rent of a home in Great Britain will hit £1,550pcm by 2026, £333pcm more than in December 2022, with the largest increases expected this year and next as landlords roll off fixed term deals and face considerably higher mortgage payments.

The build-up of long-term supply issues is also causing continuing pressure on rents, meaning that the average rent on a newly let property will rise 8% in Q4 2023, 7% in Q4 2024 and 5% in both Q4 2025 and 2026.

Lower yields

London rents are likely to rise faster than the national average as a combination of lower yields and more landlords being reliant on finance puts added pressure on investor profits in the capital, according to Hamptons.

It believes rental growth will also be strong in the North of England, where larger portfolio landlords, which are more likely to be reliant on finance, are most active. London is also the lowest yielding region so landlords there have less ability to absorb higher costs.

Price decline

Meanwhile, it expects the ONS House Price Index to show an average house price decline of 2.5% in the final quarter of this year - a 7.4% annual fall in real terms. By the end of 2026, this will be 5.5% more than its level in the final quarter of 2022.

Aneisha Beveridge, head of research at Hamptons, says 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. She adds: “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.”