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Category: house prices
Real estate agency Knight Frank has released its projected growth estimate for rental income in the UK for 2023.
The agency predicts that rental income will rise during the last three months of 2023, leaving the year with a projected annual growth of 6.5 percent overall. Their forecast for 2024 is a slight reduction on this figure, with a 5 percent increase in rental income across the year.
Long range forecasts from Knight Frank currently predict that rental income in the UK will grow annually by 3.5, 3.0, and 2.5 for 2025, 2026, and 2027, respectively – with the projected 5-year cumulative yield from 2023 to 2027 at 22.2 percent.
Why is rental income increasing?
In the past few years, demand for housing has been far greater than supply.
A 14-year period where house prices have trended upwards has priced out a lot of would-be buyers. Back in July 2009, the UK average house price, according to the Office for National Statistics was £162,423, where in July 2023 it was £289,824, a 78% increase.
However, a strong labour market has meant there are more renters with the salary to cover rent.
The recent rise in the cost of mortgage borrowing, as well as wider changes to regulation in the private rental sector have meant a portion of landlords have chosen to exit the market.
As supply has decreased, the properties that are left are sought after by more and more people, adding to the upward pressure on rents.
Tackle high rental costs by updating taxes for landlords
Propertymark, a membership body for property agents, is calling on the government to review taxes for landlords, in a bid to reduce the costs associated with renting out property.
If implemented, they hope this will attract more landlords back to the market, and so reduce the cost of renting for tenants.
CEO of Propertymark, Nathen Emerson, has said:
The crux of the cost of renting crisis is that demand is far outstripping supply – Propertymark member figures in August show that the number of tenants registering for a property is almost 32% up when compared to last year.
Alongside building more homes, government must recognise the impact of the current tax regime on the availability of homes in the private rented sector and ultimately the costs passed on to tenants.
What we need is a full review of all taxes impacting private landlords in order to introduce pro-growth policies that can increase supply and bring down the cost of renting for tenants.
The landlord community has long said that the taxes applied to renting property needs to be re-worked. The stamp duty surcharge and removal of mortgage interest tax relief did dent rental investment profitability.
Tax reforms would undoubtedly bring more landlords back into the market, which would bring rents back down, however the likelihood of this happening is relatively slim, given how politically unpopular it would be.