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UK Rental Costs Hit Record High as Property Market Shows Turmoil

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Britain’s property market is experiencing record-breaking growth, according to two separate reports. The rental costs have surged at the fastest rate in over a decade, while sellers have increased their asking prices for the first time in four months. These figures highlight inflationary pressures in the UK economy, causing concerns for the Bank of England and potentially leading to further interest rate hikes.

In August, tenants paid 12% more for new rental agreements compared to the previous year, the largest rise since property broker Hamptons began publishing its letting index. The average monthly rent in Britain has reached a record high of £1,300, an increase of £140 from last year.

On the sales market, property portal Rightmove reported a 0.4% increase in asking prices in September, marking the first rise since May. However, this growth is lower than the typical increase seen during this period over the past decade, which has been around 0.6%.

The Bank of England has been implementing a series of rate hikes in an attempt to curb inflation. However, these measures have made it more expensive to purchase a home, resulting in more people remaining in the rental market. Additionally, the value of renting out properties has been negatively impacted, leading landlords to sell their properties and exacerbating the existing shortage of rental homes, thereby driving up rents.

The property market’s volatility is a concern for Prime Minister Rishi Sunak’s government, particularly with a general election expected next year. Rightmove’s data is the first major insight into the housing market this month. Other reports from mortgage lenders Nationwide and Halifax have shown that prices are falling at their sharpest pace since 2009. The Royal Institution of Chartered Surveyors has also reported a pessimistic outlook among estate agents regarding the property market.

Economists predict a 10% decline in prices during this slump, and data from mortgage lenders suggests that the UK is approximately halfway through this downturn. While the rising interest rates make borrowing more expensive, many homeowners have not yet felt the impact as they are on fixed-term deals that have not expired.

The challenges in the property purchase market are extending to the rental sector and contributing to the significant increase in rental costs. The shortage of new rental properties is compounded by a decrease in construction levels, as developers scale back on new projects.

Aneisha Beveridge, Head of Research at Hamptons, stated that each passing month sets a new rental market record, with rents rising more in the last 12 months than they did between 2015 and 2019. The fastest rental cost growth is observed in London, as the city recovers from the slump caused by the Covid-19 pandemic. Residents in the outer regions of the capital now face a bill that is 30% higher than it was in January 2020, before the first lockdowns prompted some residents to leave the city.

The ongoing challenges in the property market pose a significant risk for the government, given the upcoming general election. The Bank of England’s interest rate decisions and the availability of affordable housing will likely be key topics of concern for voters and policymakers in the months ahead.

More detail via The Straits Times here… ( Image via The Straits Times )

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