Rental market is buoyant

Nia Williams

August 27, 2010

Around 26% more chartered surveyors reported a rise in demand for property rather than a fall, which was the second consecutive quarter that lettings demand has risen at a pace above the long run average.

Tenant demand increased across all regions, but was strongest in London and the East of England. Continued difficulty in securing mortgage finance, worries over a double dip in housing and large deposits required by lenders are leading to higher numbers seeking to rent rather than buy, according to RICS.

As a result, rents increased for the second consecutive quarter, with 27% more surveyors reporting a rise in rents than a fall. Just a year ago the picture was very different, as over supply pushed rents down and 29% more surveyors reported falling not rising rents.

Although interest rates are at a record low – making property a potentially attractive option for investors – difficulty in securing buy-to-let mortgages is contributing to the lack of supply. New supply of property to the market remains low and has now fallen for four consecutive quarters, although at a slightly slower pace. In the run up to July the net balance of surveyors reporting a fall in landlord instructions was -6, in comparison to a net balance of -12 in the previous quarter.

However, existing landlords do not appear to be in any rush to dispose of their property; just 4.1% of landlords said they intended to sell their properties at the end of a tenancy agreement.

Looking ahead, the outlook for rents remains positive. 33% more surveyors expect rents to increase over the next quarter rather than fall. Rents for houses are expected to marginally outperform flats, with the net balances for this forward looking indicator moving to +34 and +31 respectively.

RICS spokesperson James Scott-Lee commented: “Supply of lettings property continued to fall in the three months to July although at the slowest pace in a year which amid rising tenant demand has helped propel rents higher for the second consecutive quarter.

“Existing landlords keen to expand their portfolio may still be struggling to access the necessary finance despite improved market conditions.

“However, there is a possibility the lettings market could face a modest increase in supply in the coming months.

“The latest RICS Housing Market Survey shows a lack of funding has stifled demand from buyers which may cause some moderation to rents as more opt to let than sell.”

David Salusbury, chairman, National Landlords Association, welcomed the report: “We welcome the latest RICS survey findings which point to strong demand for rented property. The growing need for private-rented accommodation demonstrates the importance of the role played by residential landlords.

“However, it is not all good news. One in five landlords are experiencing rent arrears and many are concerned about the increase in Capital Gains Tax.

“Added to the forthcoming cuts to Local Housing Allowance and the possibility of increased interest rates, it is clear any increase in rents will be quickly offset by these additional factors that have to be taken into account.”

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