House prices rising faster than rents

by | Dec 14, 2016 | Blog post, Finance & Taxation Reform, Housing Supply & Rents

Data released by the Office for National Statistics (ONS) today has identified that house prices are increasing more than rents in the private rented sector.

The average house price in the UK has increased by 6.9% in the year to October 2016, which has continued on the growth since the end of 2013. The average UK house price was £217,000 in October 2016, and is £14,000 higher than in October 2015. UK house prices have been increasing since late 2013, and by October 2014 had passed the peak of 2007 before the recession.

UK House price growth 2005 to 2016Source: Land Registry and Office for National Statistics (ONS)

House price growth across the UK

Across the different countries of the UK, there is a difference in prices increases. In the year to October 2016, England saw the greatest house price increase at 7.4%, while Scotland only saw a 4% growth. Average house prices across the countries are:

  • England £233,000, 7.4% growth from October 2015
  • Wales £147,000, 4.4% growth from October 2015
  • Scotland £143,000, 4% growth from October 2015

Across the regions of England, there is wide variability in house price growth. The East of England has seen the highest annual growth at 12.3%, followed by the South East at 9.1%. However, the North East has seen the smallest annual growth at 2.7%.

regional house price increases

Source: Land Registry and Office for National Statistics (ONS)

However, while London experienced house price growth at 7.7% between October 2015 and October 2016. Some London boroughs have seen decreases in house prices.

Houses in the City of London have seen prices decrease by 8.8% and the Borough of Kensington and Chelsea has seen a decrease of 4.9%. Yet, the average house price now stands at £712,936 and £1,207,128 respectively, and are still out of reach for the majority of the population.

Going forward this strength in the housing market has been predicted to change, with Rightmove forecasting house price growth to be at 2% next year. The property agency are also predicting a continuation of house price decreases in Inner London, with prices set to decrease by 5%.

Rental Price Growth in the PRS

The data from the ONS shows a stark contrast in rental price growths compared to UK house price growth. In Great Britain private rents grew by 2.3% in the 12 months to October 2016 compared to the 6.9% growth in house prices.

figure-1-iphrp-indices-great-britain-january-2011-to-october-2016-1

Source: Office for National Statistics (ONS)

This difference is more pronounced across the different countries, Scotland has experienced a decrease of 0.2% in rental prices compared to the 4% growth in house prices. This is a similar case for Wales, where rents have increased by 0.4% in  the year to October 2016 while house prices have increased by 4.4%.

As you can see from the figure below, there is reliability and relative stability in the private rented sector with stable rental increases, yet, house prices fluctuate widely.

house and rent price change

Source: Office for National Statistics – Analysed by the RLA

The data shows rents across the country are not increasing as fast as UK house prices, findings from the Landlord Investment, Finance and Tax Report 2016 identifies that a large proportion of landlords are not planning to increase rents in the next 12 months.

Going forward though this could change with the housing bubble set to burst according to Rightmove, however, Savills has predicted house prices to rise by 13.1% by 2021 and rents to have risen by 19% by 2021. This could be likely given that government tax changes will be starting to affect landlords from next April. Our own evidence shows the 56% that do plan to increase rents in the next 12 months this was due to the incoming changes to mortgage interest relief. The data shows that the private rental market is relatively stable in comparison to house prices. Nevertheless, incoming taxation reform and regulations of buy-to-let mortgage activity could hamper this stability.