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Rising Rents Predicted to Increase More Than House Prices
A new report by Savills predicts that rents will rise more than house prices over the next five years. The report, which has to be music to every landlord's ears has made this forecast due to rising demand for rental property. It thinks it unlikely that the current supply of rental property will keep pace with demand, and that competition amongst renters will push rents up. It is predicting that average rents could rise by as much as 20.5% by the end of 2016, which is pretty amazing when compared to house price growth which is predicted to be just 6% during the same period.
If this turns out to be true then it could significantly increase yields, and the buy to let sector is likely to see more activity from companies and institutions as well as private investors. According to Savills this type of rental growth would increase the average gross yield on residential property from 5.4% to 6.1% during the five-year period, and this could be even higher in areas where there is low owner occupier demand.
The demand for private rented accommodation looks unlikely to change so long as mortgages remain in scarce supply, and first-time buyers continue to struggle to find sufficiently large deposits. Savills doesn't have any worries that the buy to let market may be overheated, and instead sees the challenge as being how to meet the demand for private rental property.