Earlier this month the BBC reported on the somewhat surprising forecasts from property agents Savills that predicted how rental prices across the UK are set to change compared to that of house prices. Within the article, BBC personal finance reporter Brian Milligan explained that rents are expected to increase by almost 20% within the next 5 years, which is 6% higher than the predicted house price increase. This disparity is expected to be even more extreme in London, with rental prices in the Capital forecast to increase by just under 25% but house prices increasing by less than 11%.
Why are the UK’s rental prices rising?
The reason suggested for these dramatic predictions is "post-referendum economic uncertainty and weaker consumer sentiment”. Furthering this, the British Chambers of Commerce (BCC) warned that mounting political and economic uncertainty is likely to hit UK investment across all sectors. At the same time consumer spending is being “stifled”, which could effectively “to put a brake on investment”. The organisation said the UK is likely to avoid a recession as seen in previous years, but warned firms were still digesting the referendum result, implying the results of Brexit may not all become immediately apparent - especially with recent Brexit disruption.
Average wage vs Average rent
Housing experts recommend that housing should cost no more than 30% of take home pay as a general rule of thumb. If the 2016 averag salary of £27,000 is taken into account, housing spend should roughly be around £675 pcm.
Currently, to rent a studio flat in London, the only borough that would come in at less than the recommended 30% is Bexley. If you are looking for a 1, 2 or 3 bedroom property then it would cost more than 50% of your disposable income in 24 London boroughs.
Whilst rental prices in the South East of the country seem inaccessible for the average salary earner, renting a one-bedroom property in the North has shown to fall within recommended limits everywhere except Salford, Trafford and Manchester city centre.
Overall figures from the Office of National Statistics (ONS) showed that out of 324 areas across the UK, there were 142 in which the average cost of rent came in at more than the recommended 30% of take-home salary, with almost every northern location within the limit.
All of this draws to the conclusion that when it comes to housing and rental prices, the North is a much more affordable option. A wise outlook would be to keep an eye on all housing rental and sale prices over the next few months, at least until Brexit’s Article 50 has been properly secured.