- Savills forecast a further 6% rise in the average rent in 2024
- But the estate agent says rents will hit an ‘affordability ceiling’ in 2025
- In 2028, rents could go up by just 2% in a year, it predicts
Tenants can expect further rent hikes next year, but they could get some respite in 2025 as rents rises are predicted to stop outpacing growth in people’s incomes.
The estate agent Savills forecasts average rents to rise 6 per cent in 2024, mainly due to there being fewer properties available than there are tenants seeking to rent them.
But by 2028, it says that rents could rise by just 2 per cent in a year, compared to the huge 11.2 per cent rise they saw in 2022.
Short supply: The estate agent Savills expects the supply and demand imbalance will continue next year and forecasts average rents to rise 6% in 2024
Between October 2020 and October 2023, the average UK rent rose by almost 32 per cent from £974 a month to £1,283, according to the Homelet Rental Index.
Savills now estimates that the average renter household is spending 35.3 per cent of their income on rent, up from 33 per cent in 2021-22.
Although rents are unlikely to stop rising in cash terms, Savills is expecting the pace of rent rises to slow dramatically.
When will rents stop rising?
Savills said that, come 2025, rents will hit an ‘affordability ceiling’ and could stop growing faster than people’s incomes.
Savills predicts that, after growing by 6 per cent in 2024, rents could then rise by 3.5 per cent in 2025, 3 per cent in 2026, 2.5 per cent in 2027 and just 2 per cent in 2028.
The market is already feeling the impact of hitting an affordability ceiling in London, where rents already take up a much higher proportion of income – at 42.5 per cent on average, according to Savills.
Five-year rent forecast: Savills predicts that rents will rise 6% next year before it hits somewhat of an affordability ceiling in 2025
Savills says that renters in the capital have now exhausted their capacity to bid upwards.
As a result, month-on-month rental growth has fallen from an average of 1.2 per cent in 2022 to 0.6 per cent so far in 2023 – and is likely to remain lower than the UK average over the next 18 months.
Emily Williams, director in the Savills residential research team, said: ‘Homes to rent continue to be in significant short supply.
‘The end of a series of national lockdowns sparked increased rental demand in mid-2021 that has consistently outstripped supply ever since.
‘At the same time, the rising cost of debt has impacted the profitability of many mortgaged landlords. This, together with a changed tax and policy environment, is forcing an increasing number to sell their properties.
‘As a result, competition for stock is tough, and tenants are having to bid upwards to secure a tenancy, supported – but only in part – by a strong growth in incomes, fuelling rents upwards in the short-to-medium term.
Williams says it’s hard to see where an increase in rental supply will come from in the next couple of years.
She added: ‘Higher borrowing costs will also keep would-be-buyers in the rental sector for longer, underpinning demand, and while some landlords will be able to transact in cash to avoid the higher cost of debt, this is unlikely to move the dial on supply.
‘Any significant increase in stock in the sector will be delayed until 2026 and beyond, when interest rates have fallen more substantially.’