A recent forecast from a leading estate and lettings agency claims average rents across the UK  this year are 9.5 per cent higher than last year. Although this year’s rise is lower than 2022 it is the second highest ever since records were first started and rents have increased by 26 per cent since March 2020.

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The forecast predicts that next year rents will continue to rise not to the extent of this year but it is thought the increases will be near to record levels.

The agency accepts supply and demand is the force behind the rent rises and that next year it will increase by a further 6.0 per cent, however 2025 will see the affordability level being reached.

There will be even a greater supply and demand imbalance across the capital and with a better economic performance London’s rent rises will outstrip the UK average by the end of 2025.

The South East and South West will achieve their highest ever five year growth, because lower rental yields will keep PRS housing stock investment in short supply.

A spokesperson for the agency, says: “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.

“It’s very difficult to see where an increase in rental supply will come from in the next couple of years. 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.”

The agency believes that further rental housing stock in London will be held back as rental yields are already lower so there will be a fair amount of time before decent premiums over the risk free rate become available.