Renting vs buying: Rents set to rise twice as fast as house prices by 2026

by Aaron Strutt

Sep 11 2023

New research from Hamptons estate agents suggests that rents will rise 25% across Great Britain between 2023 and 2026, with the most rapid pace of increase in 2023 and 2024.

Hamptons Market Insight report says that such a rise would normally encourage a stampede into the buy-to-let business. However, 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.

The average rent on a newly let property in Great Britain rose by 9.9% in July, marking the 27th consecutive month in which rental growth has exceeded 5%. 

Despite affordability pressures, many tenants have agreed to double-digit increases when moving into a new home, tacitly acknowledging their limited options. 

The report says increases in mortgage repayments have squeezed homeowners of all types, but the ability and willingness of landlords to absorb higher rates have been more limited. Data from Hamptons states that nearly 70% of all landlords have a mortgage or some form of borrowing, most of whom are on interest-only deals where rate rises are amplified.

Hamptons says there are more than three million more renters than in the late 1980's

Hamptons report adds that there are close to three million more households renting today than when interest rates last rose sharply in the late 1980s. The number of landlords who rely on leverage has increased thanks to the introduction of buy-to-let mortgages in the early 1990s.

Steeper borrowing costs are not the only issue, with substantial regulatory reforms on the horizon. The Renters Reform Bill is likely to further add to landlords' costs, and more regulation may be in the offing whichever party wins the general election. However, there has perhaps been a softening of the political rhetoric in recent months, with a recognition of the pressures on landlords.

Another factor may push up the cost of finance for landlords. The Basel 111 regulations, designed to strengthen the banking sector, will finally go live in 2025. These will oblige banks to hold much more capital against lending to portfolio and HMO landlords.

Aneisha Beveridge, Head of Research at Hamptons, added: "Despite rising rates and the cost of living crunch catching many households off guard, it's becoming increasingly clear that the house price crash that some forecasters envisioned hasn't materialised."

Many renters will want to leave the rental market and purchase a property. Skipton Building Society has changed its 100% mortgage and is no longer limited to first-time buyers.

Source: Hampton International 

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