How much will your buy-to-let investment be worth in 10 years?

Property prices and rents are up again – and could soar over the next decade

Investment news over the last week has shown that the average house price in the UK continues to rise at around 4.5% annually – or 0.37% per month. Also, average rents have increased by 3.1% over the last year. We thought we’d follow eMoov’s lead, who have extrapolated the monthly house price rise to estimate house prices in 2027 and look into our crystal ball to see what rents might be in ten years. The results are astounding.

House prices could rise by 56% and more over the next ten years

The rate of house price growth has slowed since the EU Referendum in June 2016. But prices haven’t collapsed as so many experts and financial gurus claimed they would. And while inflation has risen to around 2.5%, the average house price has increased by 4.53%. That’s inflation-busting capital growth.

The annual increase of 4.53% boils down to an average 0.37% per month (with growth compounded monthly). It is a little more than half of the 0.67% per month between June 2015 and June 2016. If this slower rate of growth persists for the next 10 years, the average house price will increase by 56% – from around £223,000 today to approximately £347,000 in 2027.

This average should be enough to whet the appetite of most investors, but eMoov has also forecast 2027 average prices in cities around the UK using each city’s current rate of price growth and found that for example:

  • London’s average house price would rise to £597,544 (at the current rate of 0.18% per month)
  • Nottingham’s average house price would rise a whopping 160% to £346,592 (at 0.80% per month)
  • Oxford and Cardiff would see their average house prices rise by 115% (at 0.64% per month)

Average rents could rise by 36% over the next 10 years

A fall in housing stock has been cited as the reason behind an increase in average rents in England and Wales. Your Move’s latest Buy-to-Let Index discovered that nine of the 10 regions surveyed experienced rent increases over the last 12 months. Only the South West didn’t see its average rent increase.

Across the two countries, average rent now stands at £874 per month, an annual rise of 3.1%. However, because of the rise in average house prices, most rental yields remained unchanged.

The report suggests that rental stock has been restricted because of the effect of government policies such as the increase in stamp duty in 2016, and the change to the way in which tax relief is given on mortgage interest. However, we believe it is simply that landlords are increasing rents to retain profit margins.

While Your Move didn’t extrapolate rental prices as eMoov did with average house prices, we thought we’d apply the same logic to rental prices. If they continue to increase at the same rate as in the year to July 2017, in 10 years the average rent in England and Wales will be £1,186 per month or £14,232 per year.

What do we say?

While past performance is no guarantee of the future, the property market dynamics in the UK are weighed heavily in favour of investors. The population is growing fast, and housebuilders cannot keep up with demand for new homes. It is putting upward pressure on property prices and making it more difficult for first-time buyers to get on the property ladder. It, in turn, is rippling out to a rapid rise in the demand for rental properties – and helping to push up rental prices.

Extrapolating property value and rental price increases is a bit of fun. There is, of course, no guarantee that a rise of 56% in values and 36% in rental prices will transpire over the next 10 years. On the other hand, these estimates might also prove to be on the low side.

To stay abreast of all the property investment news that matters, contact one of our team today on +44 (0)207 923 6100. Ask about our newsletter. We give it to you straight. No BS. No hype.

Live with passion

Brett Alegre-Wood

Brett Alegre-Wood
September 11, 2017

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