Over the past 10 years, strong rental growth in mainstream housing across the UK has tended to be limited to London and a select group of regional towns and cities, where demand from a growing pool of tenants has outstripped supply. These conditions exist mainly in locations with major universities or employment centres and where new development has not kept pace with demographic changes.

At a national level there is a clear historic relationship between the strength of the sales market and 
the amount of stock which finds its way onto the rental market, a pattern that typically dictates the relative pace of rental growth.

"We are forecasting that the number of households in the private rented sector will rise by 1.2 million over the next five years"

Against the context of less volatile and consistently positive demand from a growing pool of tenants, this has been an important determinant 
of the pace of rental growth.

Over the course of 2014 a relatively buoyant mainstream sales market has limited stock availability in the rental market. This has maintained positive rental expectations across the country.

As we look forward, tighter mortgage regulation is likely to restrict people's ability to get on and trade up the housing ladder, capping transaction levels across the country and underpinning rental demand. In this respect there is evidence that the mortgage market review has caused mortgage approvals to plateau.

In addition, as interest rates rise 
over the medium term so the costs 
of ownership relative to renting are likely to rise, further underpinning demand for renting.

In light of the above we are forecasting that the number of households in the private rented sector will rise by 1.2 million over the next five years, with more than half of that growth occurring in households over the age of 35. 
This is likely to increase demand for family housing in the sector as much as for smaller properties.

Our forecast for rental growth in the mainstream market over the next five years is a little ahead of expected wage growth, as tenants either pay more of their income to secure properties in locations with good amenities and transport links, or make greater use of sharing to maximise individual budgets.

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Taken from
Spotlight: Prime Rental Market - January 2015