The cost of rentals should increase by 4.5% in 2025, followed by a rise of 4% in 2026 and 2027, Hamptons has predicted.
Growth looks set to reach 4.5% in 2024, dropping from 10.2% in 2023.
Steadier rental growth comes as a result of lower mortgage rates and inflation, which have reduced the need for landlords to increase rent as much as last year, as well as squeezed tenant affordability.
Hamptons said the pace of increases will be increasingly constrained by affordability pressures on tenants resulting from past steep rises, as well as broader cost of living challenges.
However the political risks of launching the Renters’ Rights Bill could drive landlords out, constricting supply, which would serve to push rental growth higher than its long-term historical average of 1.8% annually.
Hamptons reckons rental growth will outpace house price growth between 2024 and 2027, reaching 17% compared to price growth of 12.5%.
House prices predicted to rise by 3% in 2025.
Property prices are expected to see a 3% increase in 2025 across the UK, Hamptons has predicted.
The base rate should fall to 3.75% by the end of next year, driving the average house price north of £300,000 for the first time, around £10,000 above its current level.
After that prices are predicted to rise by 3.5% in 2026, followed by a rise of 2.5% in 2027.
Aneisha Beveridge, head of research at Hamptons, said: “As the end of 2024 approaches, the mood of the housing market has shifted from trepidation to cautious optimism. Lower mortgage rates have been the principal catalyst for change, falling more rapidly than we expected.
“Even though an improving affordability picture, driven by lower mortgage rates and robust pay rises, looks likely to fuel price increases and transactions in 2025, higher rates for longer will weigh on long-term growth.
“The combined effect of persistently higher interest rates and sluggish economic growth is likely to dampen long-term house price performance compared to previous cycles. It will also remain a barrier to homeownership for many would-be first-time buyers, limiting longer-term transaction numbers.”
London
Next year London is expected to outperform other regions for the first time since 2015, with 4.0% annual price growth in 2025.
Unlike the beginning of previous cycles such as in 2008 and 1994, areas outside Prime Central London are expected to be the strongest performers.
Prime Central London’s recovery is likely to be delayed as buyers and sellers adjust to revised tax rules.
