How do house prices affect me as a tenant?

High property prices do reflect on rental prices. However there is not always a direct relation. For example property prices may rise by 10% and rental prices may rise by 5% . Recently the price of houses in the UK has continued to rise rapidly however the rental prices didn’t always keep up. This was because a component of the growth in property prices, new buy to let investors created extra supply in the rental market.

With uncertainty in the market and an almost stagnation of property prices virtually imminent it is difficult to predict the effect on rental prices. The main element that caused the over investment in property are still around. Increasing amounts of single occupancy and lower occupancy mean more property is required for the same population. Compound that with immigration and a recent history of investment in the UK via the city. Then it becomes easy to understand how property prices got so high.

Recent figures are suggesting that the number of first time buyers has dropped. If the first time buyers aren’t buying then they are probably renting. This pushes prices for rentals up. However maybe they are expecting prices to drop due to the recent financial problems in the city and recent rate rises. In this scenario we could see rentals temporarily rise or at least hold. If property prices begin to drop there will be a short lag on rentals. People will be induced to buy due to the cheaper prices. Buy to let investors with small margins will start to struggle as rentals stagnate. If a large number of these start to sell up we could see a significant drop in property prices but a less significant drop in rentals.

All this would serve to do is increase the benefits of owning a property in comparison to renting. Currently the benefits of purchasing over renting are the lowest for years. Increasing the benefits of buying could see property prices regain their form in the next 18 months. As if the market wasn’t already overheating the Olympics are sure to add a turbo charger to the whole cocktail.