Rents Seen Rising Faster than House Prices

Rents Seen Rising Faster than House Prices

The Royal Institution for Chartered Surveyors’ latest housing market report for January highlighted a number of interesting details. There was the regular, monthly data on house prices and sales volumes – house prices rose and sales volumes were flat – both little changed from December.

But, the RICS also questioned its member surveyors on their views for rents and house prices over the next five years. The results may come as a surprise to many of you; rents are expected to rise by 25% by 2022, while house prices are expected to grow by a little less than 20% over the same period

This highlights what many of you already know – rental demand is stronger than demand from buyers. It also underscores supply the supply shortage and suggests it isn’t set to improve any time soon.

As you know, the Government have adopted a number of changes that affect property investors. Following these changes, and others yet to come, such as the details on the banning of letting agent fees, fewer Buy-to-Let (BTL) investors are planning to expand their portfolio, while more are anticipating reducing the number of properties they own and rent out.

Combine this view of surveyors who are currently working in the market, with the RICS calculations there will be a 1.8 million shortage of rental properties by 2025 and it becomes easy to see why the average rental costs are forecast to increase by around a quarter in five, short years.

Just as a side note, the RICS January survey was conducted before the Government’s Housing White paper. But, while there were a number of welcome details in there, it’s likely to be some time before they’re acted upon and it’s unlikely that surveyors’ views – or BTL landlords’ plans – will change any time soon.

But, if you keep in mind the Government is becoming more aware of the importance of the Private Rental Sector and that demand for rented properties is only expected to increase, it could make a lot of sense for many investors to expand their portfolios.

Even in the face of the higher costs associated with BTL investment, the sheer volume of demand up and down the UK, should help make it a worthwhile business. This is particularly true if the Government realises that it should be doing more to encourage and support the PRS and eases, or even reverses, some of its recent tax changes that have punished BTL landlords.

What’s our view on this? Well, we think keeping a close eye on property prices and rental demand levels in your preferred area of investment, with an eye to adding to your BTL portfolio, could end up being more profitable than you might think!

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April 5, 2017 12:38 am

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