Rents are set to rise almost five times faster than house prices over the next four years, according to a forecast by Hamptons.

The estate agents forecast that rents will rise 25% by 2026, compared to a 5.5% price growth in property prices across Great Britain.

It predicts that falling mortgage rates combined with rising real incomes should see price falls stabilise in Q4 2024, before picking up again in 2025.

Hamptons also predicts that the total number of property transactions for 2023 will be just under one million – the lowest number of residential completions since 2012.

It believes transactions should recover to at least their pre-Covid norm in 2025 as lower mortgage rates unlock moves from previously priced out households.

However, a higher interest rate era will mean that the new norm will be between 1.2m and 1.3m transactions each year, rather than the 1.3m-1.4m it predicted last year.

Hamptons forecasts the average rent on a newly let property in Great Britain will rise 8% in Q4 2023, 7% in Q4 2024 and 5% in both Q4 2025 and 2026.

London rents are likely to rise faster than the GB average in 2023 and 2024, by 9% and 8% respectively, it adds.

Hamptons claims a combination of lower yields and more landlords being reliant on finance will put added pressure on investor profits in the capital.

Hamptons head of research, Aneisha Beveridge, says: “There’s a strong argument that the Bank of England’s quest to quell inflation has hit the rental sector harder than any other part of the housing market.

“A build-up of long-term supply issues combined with soaring landlord costs is putting upward pressure on rents.

“And it’s hard to see any of these pressures receding any time soon, which is why we expect rents to continue rising over the next few years.”

She adds that despite rising rates and the cost-of-living crisis, it’s becoming ‘increasingly clear’ that the house price crash that some forecasters envisioned hasn’t materialised.

“Rather, we expect a minor price fall in 2023 followed by a slower recovery over subsequent years as households adjust to an era of higher rates,” she says.

“This will be more akin to the U-shaped downturn of the early 1990s than the V-shaped crash and subsequent speedy recovery in 2008.

“On paper, the house price falls we forecast are minor in nominal terms.

“But high inflation for other goods and services means that in real terms, the average price of a home will have fallen around 11% between 2022 and 2024.

“This essentially reflects “the correction” caused by higher rates.

“It’s also why we expect prices to rise again in both real and nominal terms from 2025 as rates fall to their new normal and a new housing cycle begins.”