Friday, August 22, 2008

UK homes for rent exceed demand

By Sharlene Goff

Published: August 18 2008 20:44 | Last updated: August 18 2008 20:44

Supply of rental accommodation rose at its quickest pace on record in the three months to July, outstripping the increase in demand from tenants, according to the latest data from the Royal Institution of Chartered Surveyors.

Rics’ latest lettings survey showed that many potential homebuyers had been forced into rental accommodation because they were unable to obtain a mortgage. Meanwhile, record numbers of homeowners were unable to sell their properties and were having to let them out.

“The wider housing market stagnation has compelled increasing numbers of would-be housebuyers and sellers to seek refuge in the rental market,” Rics said. “As a result, activity in the residential lettings market is booming.”

The increase in rental accommodation had not yet tempered growth in rental prices. Rics said rents had continued to rise at the same rapid pace as in the previous quarter.

But oversupply was expected to have an impact on rents in coming months. Rics’ survey showed that a smaller proportion of surveyors expected rents to keep rising over the next quarter.

“Established investors have been reaping the benefits of the housing downturn for some time and will continue to do so in the short term,” said James Scott-Lee, a Rics spokesman. “However, ever-increasing supply could have an impact on rental growth as tenant options increase.”

The survey showed that 37 per cent more surveyors reported a rise in new tenant lettings than a fall in the three months to July, compared with 30 per cent in the previous quarter. Meanwhile, 43 per cent more surveyors reported a rise in the number of new lettings instructions than a fall, also up from 30 per cent in April.

Rics said rents in London had flattened out, while around the country they were still rising. Only 3 per cent more surveyors in London reported a rise in rents than a fall in the three months to July.

Estate agents in London and the south-east have already started to see rents come under pressure as competition between new landlords becomes fierce.

Agents such as Savills and Knight Frank have reported sharp price falls for some rental accommodation, particularly in prime areas of London.

“We feel rents have come down as supply has come through from the sales market,” said Jane Ingram, head of lettings at Savills. “It has been much more of a tenants’ market.”

She said the reduction in rents – which had been as much as 10 per cent in some areas of London and the south-east – had meant landlords were not obtaining the high yields they might have been hoping for.

“Yields have edged up a bit but not as dramatically as people had expected,” she added.

Rics said that rising rents coupled with falling house prices had driven up gross rental yields for landlords in the three months to July, and meant that fewer than ever had opted to sell their properties in the three-month period.

Only 2.1 per cent of landlords sold their properties at the expiry of the tenant lease, the lowest on record.

Copyright The Financial Times Limited 2008

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