Expert opinions always vary when it comes to rent predictions. While JLL is forecasting that average rents across the UK will rise by 4.5% next year, Knight Frank anticipates a more modest 2.3%. RICS, meanwhile, divides the others’ two estimates, hitting 3%. This follows a year to October 2015 when 3.5% was the national average.

Demand continues to outpace supply, in part fuelled by new house starts continuing to lag behind population growth but also by the barriers facing first-time buyers.  

Keen to level the playing field between first-time buyers and buy-to-let investors, the Government announced changes to tax relief rules in the Summer Budget. This will hit those paying higher rates of income tax – but not immediately: relief is being tapered down to 20% between 2017 and 2020.

The Chancellor is also removing the “wear and tear allowance”, which sets aside 10% of rental income from being taxed, replacing it with relief on what is actually spent. It is advisable to ensure that your landlord insurance has good buildings cover to help with the cost of accidental damage.

One plus for landlords is an increase in the level of Rent a Room relief from April 2016. This will raise the amount of tax-free income that can be received from renting out a room or rooms in an individual’s only or main residential property from £4,250 to £7,500 pa. 

Other changes in the system…

Anyone letting out residential property will need to be aware that the landscape has changed somewhat with a series of new tenancy regulations, which come into effect from 1st October 2015. The first to be introduced covers new obligations about the installation and maintenance of smoke and CO alarms; further measures in the wings include responsibilities for landlords and agents to check prospective tenants’ right to rent: in effect, ensuring they have a right to be in this country.

Regional round up: Looking longer term

According to JLL:  “A strong and stable UK economy, including higher employment and salaries… will undoubtedly lead to greater demand for rental accommodation from young people starting work or wanting to move out of the parental home.”

But most of these young people will be renting, not buying. Tougher lending criteria require larger deposits, while house prices continue to accelerate away from earnings: PwC’s current estimates put average rental growth at 5% per annum between here and 2020.

This will support the trend of people moving from home ownership towards private rented: between 2001 and 2014, the number of rented homes rose from 2.2 million to 5.5 million, or one in five households.  By 2015, there are expected to be a further 1.8 million privately rented houses: one in four of the UK total.

The rental forecast in your region

East of England +3.1%

Rising house prices and a shortage of stock have been driving rentals northwards, a trend expected to continue in 2016. There are some hot sports to mention: Cambridge in particular has grown significantly through inward economic migration in recent years and the city is expected to continue to outperform the rest of the region in 2016.

East Midlands +2.7%

Tenant demand still exceeds supply with few instructions coming forward and few voids reported; and, to report a number of agents, some landlords are electing to sell in the improved market – possibly anticipating the changes in buy-to-let tax relief. Further reductions in the letting stock looks set to push up rentals in 2016. 

London +2.3%

Always a market of its own, London can also be divided into different zones, with specific factors driving demand, including the dampening of £1 million-plus house prices by the new stamp duty along with average population growth. Overall, rentals – which have grown by some 18% over the last five years – are causing problems around affordability for many workers and promoting gentrification and rent rises in new areas of the city.

North East +2.2%

Very high demand is set to continue, ensuring that properties achieve higher than expected rents locally, with strong demand for all locations and property types. Many investors are taking advantage of this by buying poor condition sub-£50,000 old terraced houses to refurbish and rent out, report Newcastle agents Edward Watson Associates.

North West +3.6%

Despite new building taking place, rentals are continuing to hold up, partly because potential buyers have difficulty with mortgages and deposits – this is a low wage area. According to Blackpool agents Bentley Higgs, the biggest rental growth over the next two to three years will be seen with three and four bed houses. Locally, the construction of a new road may inflate values near Morecambe.

Scotland +2.7%

Localised issues make for a mixed 2016 outlook. The reopening of the Borders Railway promises to stimulate demand from England as well as Scotland, while in Renfrewshire, agents report retired landlords are withdrawing from the market due to the increasing cost of regulation. In Aberdeen, Allied Surveyors report a “big increase in availability of all types of property as redundancy levels in the oil and gas sector begin to bite”.

South East +2.7%

The region’s sales market has been adversely affected by the changes in stamp duty, which has driven down supply – lending weight to the increasing number of conversions of office and commercial buildings to residential use under the new, relaxed rules on change of use. With buy-to-let investors pushing out first time buyers, this will also help to bolster supply of rented accommodation in the future.

South West +4.0%

Net inward migration (economic and from retirees) is stimulating demand and prices. Bristol, the region’s economic capital, exemplifies this – with the city’s 40,000-strong student population fuelling the HMO market and continuing to remain in the city after graduation. Bristol’s house prices and rentals rose by around 10% in 2015 and are expected to outperform the rest of the region in 2016. 

Wales +1.2%

South Wales is continuing to see tenant demand outstripping supply, driving down voids and edging up rents. This looks set to continue into 2016 with the success of Help to Buy playing a key role absorbing new lower-end properties. Landlords are waiting to see what impact Rent Smart Wales will have on the market, requiring landlords or their agents to be registered, trained and licensed.

West Midlands +4.6%

With a shortage of new stock, and demand outstripping supply, agents in most areas are anticipating that rental values will rise significantly over the next 12 months –  “Strong demand but simply no supply,” report Birmingham agents Fishers. Demand is expected to be consistent across all types of property.

Yorkshire and the Humber +2.6%

No inflation, no real wage growth, job insecurity and continuing public sector cuts are all factors influencing the local economic mood, report local agents Bramleys. Despite this, rental demand looks set to continue strongly in most areas. Average void periods fell further in 2015 – in part driven by demand from economic migrants from Eastern Europe. 

Wherever you are in the country, these trends and tips will help you stay on top of any rental changes in your region.

If you are considering buying a home, read our guide to house hunting in 2016. Or if you’ve already got a property you’re thinking about taking on tenants, consider the options for landlord insurance to make sure your rental property is properly covered.