Property: Rental market flooded by frustrated sellers

Property: Rental market flooded by frustrated sellers

Record numbers of homeowners are letting out properties after failing to sell them in the worst housing market downturn for more than a decade, the Royal Institution of Chartered Surveyors (Rics) says today.

In the three months to July, new instructions to let houses and flats increased at the fastest pace in the history of Rics' data. "Frustrated vendors have been placing their property in the market to let as they have been unable to agree sales due to a lack of demand," said Rics.

The flood of properties is expected to depress rental levels, which Rics warned may fall this year. "Rental expectations fell slightly with some surveyors expecting oversupply to push rents down in the next quarter."

Rental demand is also rising, with the biggest increase coming from families looking for houses, rather than the traditional tenant base of young adults.

"Demand for family homes remains stronger than for flats. Many would-be buyers have been forced to rent as the route to mortgage finance has been blocked. A total of 43% more chartered surveyors reported a rise than a fall in demand for houses, compared to 34% of chartered surveyors who reported a rise in demand for flats."

Letting agents report their offices busier than ever but, as the supply of properties is more than matching demand, rent levels in many parts of the country are flat or falling. An analysis by property search engine Globrix.com, which covers almost all UK letting agencies,.....continued below

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yesterday revealed the national average UK rent fell from £950 per month in June to £900 in July.

In Sheffield, average rents fell nearly 10% in the month. They also fell in Manchester and parts of London, but rose in Edinburgh and Newcastle.

A fall in rents, combined with higher mortgage costs, will place recent buy-to-let landlords under intense financial pressure and could accelerate the housing downturn as they dump properties on to the market, one leading investment house said yesterday. Skandia predicted that, after a 10-year boom in which the stock of buy-to-let mortgages has soared from £2bn to £120bn, the market will slump to around £44bn.

The number of buy-to-let mortgage deals has plummeted from 4,384 last year to 307 and lenders are demanding bigger deposits and higher rental cover.

According to financial advisers Hargreaves Lansdown, nearly 200,000 buy-to-let mortgages taken out in 2007 may be in negative equity.

But Britain's biggest buy-to-let lender, HBOS, said: "Landlords are in it for the long term rather than to make a quick buck. Some 13% of landlords own 74% of buy-to-let properties. These are large-scale, professional investors who provide considerable stability to the market."

Daniel Lee of Globrix added: "On the one hand, you have the professional landlord and portfolio property investor who is thriving, buying properties at a discount and able to tolerate falling yields in the short to medium term. On the other hand, you have amateur landlords who are struggling to make ends meet as rents fall and mortgage repayments rise."

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