Low rental stock and a lack of landlord investment could see rents in the UK rise 17.6% over the next five years, it has been forecast.
Savills has predicted this would outpace income growth over the same period, which is currently pegged at 15%.
This year, rental growth is expected to be 4% compared to a 2.9% rise in income, with the same figures expected for 2025.
Rental inflation is set to slow to 3.5% by 2026, while incomes will increase 2.6%. The period of 2027-29 is forecast to see rental growth of 3% each year, while incomes are expected to align with rises of 2.5%, 3.1% and 3% respectively.
Savills said although tenant demand had softened from the highs seen in 2021 and 2022, data from the Royal Institution of Chartered Surveyors (RICS) suggested it remained elevated.
Further, listings data indicates that the number of available rental listings per letting branch was 16% lower than levels seen in 2018-19. Because of this, properties are being let 20% faster this year than they were in 2018-19, putting more upward pressure on prices.
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Guy Whittaker, research analyst at Savills, said: “High demand and low supply have been the influence behind the significant rental growth seen over the past few years. At a national level, this pattern looks set to continue, with rents expected to rise above incomes again.”
Whittaker also suggested that changes in the rental sector could dampen landlord interest.
He added: “It is challenging to see where an increase in rental supply will come from in the next couple of years. The increase to the existing stamp duty land tax surcharge for second homes will likely dampen demand from new buy-to-let investors, and it will prevent some existing landlords from expanding their portfolios.
“The potential requirement to upgrade Energy Performance Certificate (EPC) ratings by 2030 may see some leave the sector altogether, particularly in markets where the upgrades required would exceed an entire year’s rental income. In those cases, it may make more financial sense to sell.”
London hitting a rental affordability ceiling
Savills said although London’s rental growth in the year to September was lower than the national growth at 1.5% compared to 4%, the city was “already experiencing the drag effect of affordability”.
In London, renters spent up to 43% of their income on rent, and Savills said: “An inflection point appears to have been reached.”
Whittaker added: “Slower rental growth through 2023 has led to a slight easing of affordability pressures in London. We expect that this trend will continue in the near term with rental growth of 2.5% in London in 2025, against income growth of 2.9%.
“However, we expect to see more landlords exit the market, further eroding supply, and affordability will once again take a backseat. This would mean that rental growth could be stronger than we have currently forecast.”
This article was first published on YourMoney.com‘s sister site, Mortgage Solutions. Read: Rental growth to outstrip income over five years, Savills predicts
