Rents to rise 16% to 22% over next five years - forecast

Savills says mainstream UK rents are likely to rise by an average of 16.5 per cent by the end of 2020 - in London, the rise will be 22.8 per cent.

The agency - in its annual five year forecast - says rental affordability is already so stretched for many households that rental growth will in effect be held back by simple affordability. 

The agency says households living in the private rented sector already pay more as a percentage of their income than those living in other tenures, with many reliant on housing benefit or living in larger household groups to make the tenure more affordable, and thus further reducing the growth of rents if they are to remain affordable to many tenants.

“Rental markets that are heavily dependent on housing benefit tenants such as some of the seaside towns along the south coast and parts of the northern urban belt will come under renewed pressure due to government policy (our rental forecasts are for non- housing benefit dependent tenancies)” says a Savills spokesman.

It forecasts that the traditional rental demographic of sharers and young professionals looks set to continue growing as the cost of buying limits the number able to make the move into homeownership - but these groups are likely to benefit most from the forecast wage recovery and this will drive the majority of rental growth in coming years.

But Savills warns that in some high demand/low supply rental markets, more people may live in larger household groups - so larger properties may be in more demand and produce more rental growth. 

But like many others in the industry, Savills is warning that a cap on mortgage interest payments will significantly reduce the profitability of buy to let investment for many landlords. 

“Over five years we expect the cash surplus [profit] on the average buy to let investment to fall from over £2,500 to under £950. This will cause some highly geared buy to let investors to rationalise their portfolios and limit the ability of a larger number of others to expand” says the agency.