An agency has issued its rental market forecast for 2024.
Chestertons says rents are forecast to have increased by 6.5 per cent across the UK and by around 8.0 per cent in London in 2023 driven chiefly by an imbalance between limited supply of new rental properties coming to the market and a growing population of renters.
Chestertons believes that rents are likely to rise further over the next two years as employment remains high and competition for rental properties is sustained.
However, it says the market will see more supply coming as rising yields have started to encourage more landlords back into play and some financially-stretched homeowners are choosing to put their properties on the rental market in reaction to the jump in mortgage repayments.
A statement from the agency says: “Therefore, whilst we do not foresee a change in demand, the addition of new supply is likely to have a dampening effect on rental growth over the next two years. As a result, Chestertons forecasts a 5.0 per cent increase in rents across the UK and London in 2024, followed by a drop to 3.0 to 3.5 per cent in 2025 as the accumulation of new supply begins to soak up demand.”
On the sales side Chstertsons says that by the end of 2023 house prices will have fallen by 2.0 per cent in London and by 3.0 per cent across the UK, suggesting a slowing down in the market rather than a notable correction.
It anticipates that although the era of super-low interest rates is now behind us, with a degree of pain as some homeowners transition from the lower rates to the current rates, the Bank of England is now unlikely to raise interest rates further. The BoE is even projecting small cuts in 2024 (to 5.1 per cent) and 2025 (to 4.5 per cent), which should allow the property market to recover as mortgage rates also start to fall.
Beyond this, the agency admits that the drivers of house price growth are somewhat muted.
It says: “Despite falling inflation, economic growth has stalled and is not expected to recover quickly over the next two years, and unemployment is slowly creeping up. In addition, a General Election being called at some point before the end of next year, creates added uncertainty, especially for the top end of the market, which is often affected by changes to tax rules.
“Reflecting the sluggish economic outlook, projections for house prices over the next two years are similarly subdued, although any interest rate cuts or tax incentives could quickly change this. Chestertons forecasts that UK house prices will experience a slight decline of 0.3 per cent over 2024, while London prices will show growth of 1.8 per cent due to the higher number of cash buyers that are less affected by the higher interest rates.
“The prospect of a slightly stronger economic outlook from 2025 feeds through to a more meaningful uplift in house prices. We forecast that this will result in growth of between 3.5 and 4.5 per cent across London and the UK. However, we caution that any house price growth is more likely to be slow and steady rather than spectacular.”