Rent & House Price Hikes: Effects on the UK Property Market

The only way is up for the UK economy as the cost of living, rents and house prices keep rising.

The Bank of England has kept interest rates on hold for the second month, which is good news for landlords with buy-to-let mortgages.

But with inflation rising at 6.7 per cent in the year to the end of September, the number of agreed mortgages has plummeted while rents and house prices are increasing.

Between September and October 2023, house prices jumped 0.9 per cent - the most significant monthly rise for over a year. However, the average cost of a home dropped by 3.3 per cent from £268,282 in October 2022 to £259,423 this year.

Most lenders agreed the rise was in response to a lack of homes for sale and affordability problems for buyers.

The data reveals around a third of home purchases are cash transactions.

Interest rates on hold

The Bank’s official interest rate is 5.25 per cent, but landlords refinancing as their fixed-rate deals come to an end can expect to pay a little more.

The best two-year fix is a 4.99 per cent deal with a 35 per cent deposit from The Mortgage Works, the Nationwide Building Society buy-to-let brand.

Despite the October 2023 growth, lenders expect house prices to continue falling for the next few months.

Lloyds Bank, which owns the Halifax, one of the country’s largest mortgage lenders, is predicting a 4.7 per cent fall by Christmas, a further 2.4 per cent drop next year and the start of a recovery in 2025.

Meanwhile, house prices and interest rates have little effect on the private rental market.

Rents still rising

Rents were up 5.7 per cent in the year to September 2023, says the Office for National Statistics (ONS).

Regionally, the increase varied - from 4.7 per cent in the Northeast to a record 6.2 per cent in London, the highest annual rent rise in the capital since records started in January 2006.

The rent spike started in the second half of 2021 for every region except London, where prices decreased before catching up with the rest of the country.

Letting agents report tenant demand is increasing while the number of homes to let is dropping.

Trade body the Royal Institution of Chartered Surveyors forecasts rents will rise another five per cent over the next year.

How rents changed where you are

London (6.2 per cent) saw the most rent growth in the year to the end of September, followed by 5.7 per cent across the West Midlands.

The lowest growth was 4.7 per cent in the Northeast.

The average UK rent is a record high of £1,283 per month, according to data from tenant reference agency Homelet.

London rents are even higher, hitting an average of £2,192 a month.

Unsustainable rent rises

The firm claims rents have grown at nearly twice the rate reported by the ONS - 9.56 per cent compared with 5.2 per cent.

Renters are paying the least in the Northeast - £677 a month.

“We’ve been watching rent prices creep up every month and know this is an unsustainable future for tenants and landlords alike,” said Homelet CEO Andy Halstead.

“Renters are being priced out, and the homeowners have no one to fill their vacancies. We need to see an end to these soaring prices, and fast, before we have a full rental crisis on our hands.”

View Related Handbook Page

Investing in a Property

Investing in a private rented property can be achieved in a variety of ways. Sometimes landlords inherit a property that they then turn over to renting. Sometimes owners of properties become unintentional landlords because they are unable or unwilling to sell a property at the value the market currently dictates.