Tenants Face Strain In Property Market Squeeze

The rise in rental costs is expected to outpace house price growth over the next five years as landlords come under pressure.

The Royal Institute of Chartered Surveyors (RICS) predicts a 6% rise in house prices next year - outpacing any rise in household income - in its annual forecast amid a squeeze on housing supply.

But it also sees a 3% increase in private rents and that this sector will come under increasing strain.

RICS members expect that rents could be rising by an average of 5% a year for the next five years, against 4.7% for house prices.

It (Other OTC: ITGL - news) appears to suggest that as the ambition of home ownership becomes further out of reach for many, renting will also become increasingly hard to afford.

The Government has rolled out initiatives such as Help To Buy to spur home ownership. It also recently announced plans to see 400,000 homes built in the private sector.

But George Osborne's Autumn Statement last month saw the announcement of a 3% stamp duty surcharge on buy-to-let property transactions. The Association of Residential Letting Agents has already described the policy as "catastrophic".

RICS chief economist Simon Rubinsohn said: "Our principal concern with the measures announced by the Government is that they are overly focused on promoting home ownership at the expense of other tenures.

"Discouraging buy-to-let could see private rents take even more of the strain."

A 6% rate of house price growth would represent an increase on the 5.6% pace in the 12 months to October reported by the Land Registry.

RICS expects lack of housing stock to be the main driver for the rise, together with the persistence of cheap credit conditions - with interest rates still at their all-time low of 0.5%.

It forecasts the number of transactions to edge up from 1.22 million this year to between 1.25 million and 1.3 million in 2016.

Mr Rubinsohn said the issue of housing had "clearly leapt up the Government's agenda".

But he added: "Despite the raft of initiatives announced over the past year, the lags involved in development mean that prices, and for that matter rents, are likely to rise further over the next 12 months.

"Looking further out, there is some justification for taking a more optimistic view of new build with significant incentives being put in place to deliver starter homes.

"While this may not on its own stem the upward trend in house prices, it could help to slow the rate of growth to something closer to the probable rise in household incomes."

RICS predicts house price growth in 2016 to be led by East Anglia, up 8%, with the most modest rises in the North East, at 3%. London is forecast to see price growth of 5%.

ARLA managing director David Cox said it also expected rents to rise over the next year due to rising house prices and added costs facing landlords.

He added: "Next (Other OTC: NXGPY - news) year, buy-to-let stamp duty changes will have a huge effect on rent costs and the number of landlords entering the market is likely to go down – causing supply to dwindle at a time when we desperately need more houses (Other OTC: UBGXF - news) ."