Cost of Renting to Outstrip House Price Growth

The Royal Institution of Chartered Surveyors (RICS) recently published its housing market forecast for the coming year. They are not the only one and there are plenty of house price forecasts around at this time of year with many predicting a fairly flat market.

RICS is a little more positive in suggesting that there could be an increase of 2% in house prices over the year. It also anticipates that the number of housing transactions will rise modestly in the coming year and that repossessions will drop.

However that figure lags behind what it expects to see happen to the cost of renting. RICS forecasts that the cost of renting a property will increase by 4% as strong demand for rental properties continues.

That will not be welcome news to potential first time buyers that could find themselves caught in something of a vicious circle. In order to raise a mortgage on a new purchase borrowers need to save for bigger deposits, a key issue for any mortgage borrower let alone a cash strapped first time buyer.

The fact that first time buyers are finding the deposit requirements difficult to meet means that many remain in rented accommodation for longer. That leads to greater demand for good quality rental properties and in turn drives up the rental costs.

Clearly that has a consequence for the monthly budgeting ability of tenants and ultimately is only likely to make saving for a deposit even harder and delay a step up to home ownership even further.

The flip side to the plight of the first time buyer and the difficulty they face in raising a mortgage is that a lift in rents is good news for landlords. Many landlords will find that they have a good choice of very competitive Buy to Let mortgages available to them, are enjoying strong tenant demand resulting in a good income.

The RICS figures will do little to hearten first time buyers and it is only likely to increase the interest of property investors leading to a strong Buy to Let market.


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