How the UK rental market might change over the next five years

 

The UK will have left the EU next year if the polls are anything to go by, but how Brexit will affect the country’s rental market once it’s happened remains to be seen.

Savills’ long awaited Residential Property Forecasts has now been released, predicting 15% compound growth in UK house prices over the next five years, with massive regional variations. While investors can look at these predictions to decide on their capital appreciation prospects, it is important also to consider rental growth.

London trends in reverse

According to the report, the international property agent expects rents to continue to rise in the buy-to-let market between now and 2024, with an average 15.4% increase UK-wide in rents. However, when taking London in isolation, this figure increases to 18.8%, which is a reversal in the capital’s negative house price trends compared to the rest of the country.

While the capital might only see rents rise by an average 2% next year, the forecast shows 4% in 2021 through to 2023, followed by a levelling off to 3.5% in 2024.

Buy-to-let supply changes

The report states: “Pressure on private landlords will limit the supply of rental properties (especially in the higher-value, lower-yielding markets). But the proportion of household income that tenants can afford to pay as rent will be the overriding constraint on rental growth.

“The fundamentals supporting rental growth, incomes and employment, are strongest in London. While a glut of buy-to-let supply in 2016 has suppressed growth recently, we predict a return to London outperforming as tax changes push landlords out of the sector.”

Interestingly, income growth in the UK almost mirrors average rental growth at 15.6% (compound) over the next five years. This is based on a rise of 2.6% next year, followed by a flat 3% rise every year following until 2024.

A “jelly” market

Lucian Cook, head of residential research at Savills, likens trying to pinpoint assumptions on the country’s property market to “nailing jelly to a wall”, as every week seems to bring new twists and turns in the political situation. While the situation does seem more solid at the moment with the Conservatives the favourite to win the general election next month, which would probably see the current Brexit deal getting the go-ahead on 31 January next year, things can always change.

In his outline for the residential property forecast, Cook writes: “On these assumptions, we are forecasting the average price of a UK home will rise by 15% over five years, with a Brexit-bounce only gaining a real foothold at the end of the transition period.

He concludes: “We do so knowing that there will be substantial variation across different parts of the market. We also do so knowing that, jelly being jelly, the outlook could change quickly if circumstances dictate that we need to revisit these assumptions.”

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Buy-to-let rent growth

How the UK rental market might change over the next five years

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