Rents to rise but property prices set for slow growth

Martina LeesLettings, Property marketLeave a Comment

The heady days of sky-high property price rises have made way for a new normal of slow growth

Rents have been flat, but the pace is predicted to pick up. House prices, however, have adjusted to a new normal, with significantly slower growth than what we have been used to.

The numbers

Savills estate agency predicts London rents will increase 3%, followed by 4.5% in 2018. Across Britain, it forecasts similar growth in rents of 2.5%, rising to 4% by 2018.

Capital values
Gone are the days of double-digit house price rises. After zero growth this year, Savills predicts 2% next year and 5.5% in 2018. London, which had once raced ahead, is now forecast to be on par with the rest of the country: 3% next year and and 4.5% in 2018.

The reasons

In the rental market, some landlords have started to sell up. In the first real evidence of this, Savills found the growth in outstanding buy-to-let loans is falling behind new lending to the sector: over the past year, this gap has widened five-fold to 50,000.

Over time, this will hit the supply of rental homes. At the same time, tenant demand continues to grow: the average deposit for a first time buyer in London is now a mind-boggling £99,800.

Capital values
When it comes to house prices, several drivers are falling away, says JLL, the respected property firm. Low interest rates have started to rise and population growth will slow due to Brexit.

At the same time, constraints are starting to bite: mortgage rules are tougher for all, investor demand is down and the Bank of Mum and Dad can give less support as parents have to fund their own elderly care.

The lessons

More than ever, property investment is a long-term game. You can’t count on fast capital growth, but there is money to be made from growth in rental income.

That said, rising tenant demand doesn’t mean you can put up your rent to whatever you like just so you can cover the bigger mortgage payment and higher tax bill.

The average couple who rent privately already pay almost half their income on rent, according to the English Housing Survey. Rising inflation has further eaten into their income, limiting what they can afford — and what you can therefore charge. You still have to set your rent according to the market — and here we tell you how.

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