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Buy to let demand outstrips supply "nationwide"

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The number of tenants is seeking rental property is fast outstripping capacity across most areas of the country, the Association of Residential Letting Agents (ARLA) has said, with the upward pressure on buy to let rent yields already becoming evident in some spots.

The rental market has boomed as more and more potential home owners opt to stay out of the market, and the pool of available property is drying up. In addition, despite near static or slipping prices across the country, much of the housing market remains out of reach of many first time buyers.

A third of ARLAs members told its quarterly report that the number of tenants approaching them outweighed the numbers of properties on their books. The responses came from a broad geographical spread across the country, and indicated that the trend was expanding nationwide, apart from London and the south east.

Even here however, buy to let investment property purchases were showing rising rental yields, especially in the capital. "This very healthy balance between supply and demand could well indicate that it may not be long before there is a shortage of property in the private rented sector," ARLA chief executive Adrian Turner told This is Money.

"This quarter's report confirms what we expected, rising values in good quality rental property and rising tenant demand. If we cannot maintain a degree of surplus capacity, the rental market could need additional property very urgently," he added.

Average new tenancy numbers crossing letting agents desks have risen ten per cent from 30 to 33 per cent through the quarter, although average empty periods remained 27 days.

"This reflects both the softening of house prices and the shift towards renting. More people see renting as the socially acceptable flexible alternative to owner occupation," Mr Turner said.

Reinforcing the sense of market momentum, major financial providers who have in recent years steered clear of buy to let are reawakening to its temptations and launching new property investment products.

Banks have changed their attitudes in response to a maturing and developing market, an Alliance and Leicester spokesman said, announcing that the company would be making a return to buy to let mortgage provision: "There were a lot of people in the buy-to-let market who did not understand the risk they were taking on".

The Mortgage Trust, John Charcol, Leeds & Holbeck, West Bromwich Building Society and Chelsea Building Society have all launched new mortgages targeting buy to let property investment in recent weeks.

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