Rents are predicted to rise faster than house prices over the next five years as landlords scale-back their portfolios, according to surveyors.
The Royal Institution of Chartered Surveyors said that rents are set to increase by 25% over the next five years compared to a 20% rise in house prices over the same period.
RICS said that changes to stamp duty and mortgage interest tax relief would result in landlords pulling out of the market.
This would lead to tenants competing for fewer properties and prices rising.
The survey found that 28% of respondents felt that landlords would decrease the size of their portfolio over the next 12 months. Meanwhile, 26% said they expect landlords to scale-back their portfolios over the next three years.
Last year, the Government increased stamp duty on second homes as part of its plans to curb the buy-to-let market and free up property for first-time buyers.
From April, mortgage interest relief for residential buy-to-let properties is also set to be reduced to the base income tax rate, which is 20%.
The survey was conducted before the release of the Government’s housing white paper this week.
The paper outlines the Government’s plans for solving the housing crisis and signals a shift in policy towards the rental sector.
The Government aims to tackle the high cost of renting by amending planning rules so councils can plan for long-term Build to Rent homes and a consultation has been launched to allow developers to offer more affordable rents.
It said steps were also being taken to ensure families have better access to longer-term tenancies in private rented schemes so that they have more security.
The proportion of people living in the expensive private rented sector has doubled since 2000 and more than 2.2 million working households with below-average incomes spend a third or more of their disposable income on housing.
Jeremy Blackburn, RICS head of UK policy, said the Government had listened to RICS about expanding the supply of the rental sector and giving it greater priority alongside owner occupation.
He said: “Our survey demonstrates how vital greater supply is in this sector; we really need to turbo boost Build to Rent. The consultation on how to do this must be used as a defining moment.”
RICS said that 25% of respondents saw prices rise, rather than fall in January.
Prices in London deteriorated slightly in Central London for the second month in a row.
Most other parts of the UK continue to see prices rise, with the North West, the South West and Northern Ireland all performing strongly.
Prices are expected to continue to rise over both the next three and 12 months across the UK in all regions, except Central London.
Simon Rubinsohn, RICS chief economist, said: “The scale of the challenge Government faces as it announces its new approach to housing is clearly demonstrated in the results from our latest survey.
“Not only are the headline price and rent series pointing to further increases over the course of this year, but more significantly, the medium term view of RICS professionals working up and down the country is that both house prices and rents will over the medium term continue to grow at a faster pace than wages putting even greater pressure on affordability. Whether the measures announced can ease this this trend remains to be seen.”
Andrew McPhillips, chief economist at Yorkshire Building Society, said: “Reduced availability of housing stock should outweigh the effects of slowing demand, supporting house price growth in the short term. With house prices expected to continue to increase, the balance could eventually shift in favour of supply as more people are priced out of the market. This trend is likely to cause house price growth to slow as the market becomes less competitive. Additionally, an expected increase in inflation could exacerbate affordability issues and therefore housing demand as fewer people are likely to be able to save for a deposit.
“Supply and demand in the housing market have been out of kilter for several years, which has caused house prices to increase well beyond wage growth. The recent Housing White Paper outlines some positive steps to help tackle the housing crisis, but the government’s approach needs to be developed further into a framework of tangible actions that will reduce the UK’s 1.2 million housing deficit.”
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