UK private rental sector rents set to grow by over 20% by 2018

Despite support for home ownership in the form of Help to Buy, the UK’s private rented sector is expected to grow by a further one million households sending rents up by 21% over the next five years.

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The growth will result in pressure on rental stocks which will push rental prices up even higher, according to the latest five year residential market forecast report from international real estate advisors Savills.

It points out that the private rented sector grew by two million households in the 10 years to the 2011 Census, with the sharpest growth being in the mortgage rationed period since 2007. This has created pockets of acute stock shortage, particularly in major cities where the demand is concentrated, and Savills now forecasts that average UK rents will rise by 21% over the next five years.

The London mainstream market, where the imbalance between tenant demand and supply is most acute, will see higher rent increases than any other region or market sector. Here, values for mainstream rental properties are expected to increase by 25.8% over the next five years, marginally outpacing underlying house price growth which is expected to total 24.4%.

‘Help to Buy will allow some trapped renters to access home ownership even though costs of home-ownership will exceed those of renting,’ said Lucian Cook, Savills head of UK residential research.

‘But we anticipate that the major beneficiaries of any increase in net lending are likely to be existing home owners. Its impact on rapidly rising rental demand will be limited, most notably in London where almost 26% of households currently live in the private rented sector, having risen 79% since 2001,’ he explained.

‘This makes the London mainstream market a particular target of buy to let investors with equity and institutions whose interest in residential has been reawoken. It also highlights an urgent need for local and national government incentives to ensure the delivery of new rental stock in volume,’ he added.

Cook also pointed out that prime London rental values, with average rents of over £1,800 per week, will have less potential for growth as more new build investment properties come on stream, with rents expected to rise by 20.4% over the next five years.

Overall rents in the UK’s mainstream market are predicted to rise by 2% next year, by 2.5% in 2015, by 4% in 2016, by 5.5% in 2017 and by 5.5% in 2018. In London’s mainstream market the projected figures are 3.5% next year and in 2015, 4.5% in 2016, and 6% in both 2017 and 2018.

But in prime London the prediction is for growth of 2.5% next year, 3% in 2015, and then 4.5% in 2016, 2017 and 2018.

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