Rents Rise as a House Price Crash Looks Likely

by Mark Johnston

As the UK property market stumbles and fears grow of a house price crash, more and more people are looking to the private rental market as first time buyers find it increasingly hard to secure finance from banks and building societies.

This is putting an extra burden on the rental market as property is in demand, landlords look to increase their rent. According to the latest figures from LSL Property Services, the Buy to Let index has increased by 1.4% in the last month alone.

David Brown, commercial director of LSL Property Services, said: “Rents are jumping up as more and more potential home buyers opt to rent. People are wary of a crash inĀ house prices and concerned over the effect of government cuts on their own ability to meet long-term financial commitments. Additionally, many can’t get a mortgage at an affordable rate. Furthermore, the huge number of reluctant landlords we saw renting out property last year have now had the opportunity to bank their gains and sell up. That’s cut into the supply of rental accommodation.”

He went on to say: “With conditions still tough for first-time buyers in terms of getting finance, in the short to medium term, renting will continue to be the preferred option for many. We wouldn’t expect rents to move back down again until mortgage products become more attractive. Until this happens, landlords remain in a position of strength.”

Rent increases have not been equal across the whole of the United Kingdom. In London and the South rents have increased by up to 3% whilst in the midlands and Wales we have seen decreases of between 1 and 1.5 percent.

David Brown explained by saying: “Summer often brings with it regional disparities and landlords in the South East and London this year were able to capitalise on the rising mercury, which can add seasonal value to their properties. Young people heading to university at around this time further energise the market as high demand puts upward pressure on prices.”

Mr Brown said: “Rents have been rising throughout this year but they haven’t affected tenant arrears until this month. But now arrears are up – in fact they are rocketing in the North East. Tenants everywhere are only going to come under further pressure as the cuts keeps coming, but it’s possible we’ll see a significant north-south divide develop. The North East is also where yields for landlords are amongst the lowest. That won’t encourage new landlords to invest there, this could mean less competition and no downward pressure on rent.”

Richard Sexton, director of business development at surveyor e.surv said: “Renting is the only real option for many individuals unable to obtain mortgage finance. There is also a greatly diminished supply of mortgage products aimed at landlords. This is suppressing the growth of stock in the sector, which in turn is driving rents up.”

David Brown summed things up by saying: “Rents have been recovering and are now just short of their peak two years ago. With house prices static, yields are on the up, but investors should do their homework diving into property investment. No one knows where the economy is going next and a shock may be around the corner. That said, demand for rental property is strong. With a sensible investment model and understanding of regional conditions, the laws of supply and demand can be used to a landlord’s significant advantage.

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