Why are Rental Prices Increasing in 2023

Why has owner-occupier demand dropped?

The reasons for owner-occupier demand dropping are plentiful. Firstly, interest rates have risen, with the Bank of England increasing the base rate to 4% in February 2023. Therefore, many buyers are postponing plans to move. Additionally, first-time buyer demand has dropped as the help-to-buy scheme has ended. First-time buyers make up a large portion of the buying market. While government support for first-time buyers continues, they are still priced out of the market.

In the UK, house prices have continued to grow, leading to higher deposit requirements. Many potential first-time buyers can no longer afford 10-20% deposits in the current market. To combat this, high loan-to-value mortgage options are available, which require a 5% deposit. However, high-interest rates result in larger repayments that are incredibly difficult to pay.

Are house prices going to rise?

House prices grew by 0.9% in January 2023, signalling strength in the market. Forecasters expected property prices to dip as a result of a drop in demand during 2023. However, early signs indicate the market has returned to a regular level of activity. Despite lower levels of demand, we can still expect to see sustained growth across the UK property market.

Additionally, regeneration in key UK cities is underway. Based on past regeneration projects, this will cause property prices to climb. This is a result of increased amenities, jobs, and facilities available to residents in the areas of regeneration. Improvements to local infrastructure benefit property owners because the value of properties in the surrounding areas increases. Therefore, landlords can earn larger levels of capital appreciation.