Flooded rental market starts to normalise

Nia Williams

July 29, 2009

The supply of rental properties more than doubled between May 2008 and May 2009 (+119%), as people who could not or chose not to sell looked for tenants instead. Two months of easing stock levels – which have declined by almost 2% – provide an early indication that this chronic oversupply of rental homes is correcting itself. Estate agents report that this has been helped by reluctant landlords returning to a sales market that is showing renewed signs of life.

This tightening of supply is coinciding with the traditionally busy early summer rental market, with rising demand from tenants translating into a modest pick-up in rents sought by landlords, after six months of steadily falling rental values. Rents fell quite sharply between May 2008 and May 2009 on the back of excess supply, with a decline of 5.5% or £48 pcm. Since then they have risen by £6 – a small but significant recovery, suggesting perhaps that the tide is turning.

Unlike the sales market, the rentals market is traditionally busy during summer as people relocate prior to starting new jobs in September, and university leavers seek rented homes once their studies are complete. While this year’s downbeat graduate jobs market will certainly dent the appetite for rented homes, particularly in the key cities such as London, there is still reasonable demand from a cross section of tenants including first time buyers struggling to raise deposits to buy. The low level of first time buyer activity this year, resulting from low levels of confidence and the difficulty in meeting lenders’ high LTV requirements, continues to contribute to demand in the private rented sector.

Michael O’Flynn, director of FindaProperty.com, said: “The flood of rental properties put on the market by reluctant landlords is starting to subside so rents are no longer in free fall, and indeed are starting to recover. If the sales market continues to strengthen as it has done since April, this is likely to further support recovery in the rental market as landlords are encouraged to sell before interest rates start rising, reducing rental supply.”

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