News

Rents predicted to grow by 19% in five years

By Will Leyland, 18 November 2016

The property market has continued to outperform economic predictions following the EU Referendum vote in June and has been a beacon of hope for many investors.

Thanks to high demand, rising standards and strong capital gains, landlords have been enjoying a prosperous time in comparison to investors involved in stocks, shares and commodities.

Currencies have been performing erratically while political shockwaves from around the globe have had an effect on stock markets. The good news has continued for landlords and property investors this week as it was announced that rental incomes are set to rise by a staggering 19% over the next five years.

Rental values are more closely linked with incomes than with measures that drive house price growth such as interest rates and mortgage availability.

Rental growth is generally expected to slow next year due to belt tightening and the effects of Brexit become clearer and both people and businesses become more cautious in the short term. Greater uncertainty, higher inflation, and a weaker pound will impact how much households can spend on rents as well as retail purchases. That being said, barriers to home ownership will remain high; strict lending criteria and stagnating incomes are likely to worsen the imbalance between supply and demand – to the benefit of buy-to-let investors.

Renting will remain the tenure of choice for younger households in particular as well as others who are unable to afford a deposit for their own property. In many areas, such as London and Bristol, affordability is already stretched and it is unlikely that this situation will improve in the near future, ensuring that people will continue to rent. As rental markets become more crowded, it has been noted that more and more young professionals are seeking to leave the capital and other expensive urban areas in favour of more affordable lifestyles elsewhere.

Any rental growth in these more expensive markets will be supported by an increase in the number of sharers as well as income growth. As affordability tightens further, though, households will seek to split their rents between more earners. The number of single occupants and couples living alone is expected to reduce dramatically by 2021.

High housing and office costs in London are making regional cities increasingly attractive to both tenants and businesses. The prospects for cities like Manchester, Liverpool and Sheffield are particularly strong as their knowledge intensive and high-tech economies draw in the most highly skilled (and paid) employees.

A vibrant cultural scene, world class universities, and extensive regeneration all help to drive the rising demand for properties – demand which has been largely unmet by new stock, thereby supporting the continued growth of rental yields. Capital gains, too, in these cities have experienced tremendous growth which, in turn, fuels further investment in the regions.

Existing and new-to-market landlords have been enjoying strong property markets in these cities. Investing has been made easier and more accessible than ever with the rise of professional letting agents focussed on improving relationships with tenants, smoother transactions and tenancy procedures which are improving satisfaction ratings from both landlords and tenants.

This has meant that landlords in the area with existing portfolios are now able to expand their existing collections, while investors previously curious about entering the market are now finding a fertile environment to finally take the plunge.

As rental performances continue strongly along with customer and landlord satisfaction there can only be room for the property investment market to grow. Letting agents are finding it an easy environment to assist and please customers as standards grow along with confidence.

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