Assetz® News - Rental market running at nine-year high

Rental market running at nine-year high

1st March 2007 |

Buy-to-let investors in the UK may be pleased to hear the results of a residential letting survey released today. According to the study, tenant demand for properties is running at a nine-year high and has risen for both flats and houses.

The survey was conducted by the Royal Institute of Chartered Surveyors (Rics), which has said that the upturn in the sector can be attributed to a strong economy and low unemployment. Rising household incomes may also account for the increased demand for larger rented properties that the market has witnessed. Another contributory factor highlighted by Rics is a sustained level of migration from the eastern European countries that have recently joined the EU.

According to Rics, 30 per cent more of the chartered surveyors they surveyed reported a rise in letting activity rather than a fall. This is the highest increase recorded in a quarterly survey since July 1998, when the difference was 41 per cent. Demand was particularly high for houses this past quarter, with a 34 per cent increase in demand recorded. This is actually the highest level of such demand recorded in the survey's history.

Chartered surveyors nationwide also reported an increased number of new landlord instructions, rising by ten per cent. New landlord instructions are taken as a key indicator of buy-to-let activity. The report found that landlords were continuing to invest in property, as high, and continually rising, property prices make resale an attractive alternative to the potential rental income. Actual landlord construction has seen as slight dip, however, as the market appears to have reached some level of saturation which has seen the sector return relatively low profits compared to previous years.

Gross yields showed a second consecutive quarter of decline, with the pace of decline accelerating to the largest since July 2004. The fall reflects equal declines for both houses and flats across all locations. Surveyors reported a firm increase in rental levels but expectations of further growth were less than optimistic with a backlog of properties expected to prevent further increases.

According to Rics spokesperson Jeremy Leaf: "the buy-to-let market remains healthy". With affordability remaining a key concern for first-time buyers, it seems that more and more people are having to rent a home as house prices continue to rise. Mr Leaf says the rental market "will remain a ‘property purgatory’ for many would-be-buyers unless accessibility and affordability conditions improve significantly".

This was also the conclusion reached by Nationwide economist Fionnula Earley when the building society released its property index yesterday. Noting that there had been a slight rise in house prices from January to February, Ms Earley observed that rate rises were beginning to make house prices and mortgages "prohibitive". For the time being then, it seems it is a landlords' market, although if inflation drops later in the year, as it is widely predicted to, the fall in interest rates that follows may result in a drop-off in rental demand as the homebuyers market thaws out.