Go on then, tell me. What is happening? Depends on who you read.
First RICS (22-5-08) told us that the slowdown in the sales market boosted rental activity in the three months to April. Rents rose, as did demand. And so did the supply of rental property.
All in all a pretty rosy picture of a booming sector.
Why so lively?
On the demand side: RICS
1. FTBs, priced out and fearful of negative equity, are renting.
2. People unable to buy because they can't find finance are renting.
3. People who have sold but don't want to buy are renting instead – waiting for prices to fall before they re-enter the market.
On the supply side:
1. A lot of landlords who would have thought about selling a few months ago are now re-letting instead – the numbers selling up has dropped. Rental returns are better because demand is strong so they’re sticking with it.
2. Second home owners are deciding to let the place out rather than sell it in the current climate.
3. People who can afford a second mortgage, buy a new home and keep the original property to let out if they can't sell it.
That Makes Sense. Who Disagrees? The Association of Residential Lettings Agents. In their quarterly report (9-6-08) they told us that rents were on the slide thanks to a rise in the amount of property available relative to demand.
The weighted average rent for houses fell by -7 per cent over the quarter. The weighted average rent for flats fell -9 per cent over the quarter. Rents were worst affected in Prime Central London (-16 per cent).
But they agreed with RICS that demand is strong, voids are low and landlords are selling less.
An ARLA representative told us that the price falls they quote were driven by an increase in the number of new-build apartments coming onto the market over the quarter. They expect rental rises in line with inflation.
So Who's Right? Hang on. There's more. A third report – from Paragon Mortgages – was published this week.
It reported "strong tenant demand has been pushing up rents, allowing landlords to achieve better yields than they've seen for more than two years."
So They Agree With RICS? Not entirely. Although Paragon's year-on-year data shows strong rental rises – 12 per cent over the past twelve months and six per cent over the past six months – their quarterly figures reveal small falls in rents.
Specifically:
Detached | % month change | Feb 08 –May 08 | May 07 – May 08 |
| value | £306,602 | 1.0% | -0.3% | 16.7% |
| yield | 6.9% | 5.2% | 4.4% | 16.5% |
| rent | £21,135 | 6.3% | 4.1% | 36.0% |
Semi-detached | % month change | Feb 08 –May 08 | May 07 – May 08 |
| value | £218,834 | -4.2% | -1.2% | 8.3% |
| yield | 6.5% | 0.2% | -0.2% | 3.7% |
| rent | £14,169 | -3.9% | -1.0% | 12.3% |
Terraced | % month change | Feb 08 –May 08 | May 07 – May 08 |
| value | £171,426 | -2.8% | -2.2% | 8.7% |
| yield | 6.9% | 0.1% | -0.1% | 4.1% |
| rent | £11,775 | -2.7% | -2.0% | 13.2% |
Flats | % month change | Feb 08 –May 08 | May 07 – May 08 |
| value | £157,528 | -2.8% | -0.3% | 0.3% |
| yield | 5.7% | -0.3% | -0.1% | 3.0% |
| rent | £8,916 | -3.1% | -0.3% | 3.3% |
Now I'm Confused. Are Rents Rising Or Falling? We asked Paragon, who said: "The trend for rental incomes is upwards and there has been very strong rental growth year on year.
"They have grown so rapidly that there was bound to be a slight correction, perhaps indicative of the reported increase in supply of rental properties in recent months.
"We are seeing some frustrated home sellers taking property off the market and deciding to rent out their properties instead – particularly in areas of high rental demand such as London.
"But we certainly do not think this is the start of a prolonged downturn in rents. Tenant demand for properties is exceptionally high and is only going to get stronger."
Where Does That Leave Us? With A very mixed picture, and one very much defined by local patterns of supply and demand. Here are some local comments from around the country:
Central London: In Central London the market has been hit by a strong rise in supply (from sellers unable to find a buyer) and a fall in demand (the credit crunch has hit the corporate sector especially hard). Hamptons International say there has been a 40 per cent rise in stock in some parts of London compared to a nine per cent rise in demand.
As a consequence, they are urging landlords to be realistic. Kate Whotton, regional lettings director, Hamptons International; "The aftermath of the credit crunch has caused some interesting changes to the lettings market.
"Many potential vendors are letting out an existing property to finance something new or simply resorting to letting their property as they cannot sell. The abundance of stock has given potential tenants more choice and buying power."
City Centres: In some city centres an excess of new-build apartments is making life much more difficult for landlords.
In Sheffield, for example, Crapper & Haigh say "the city centre flat market is now overstocked and lettings in this sector are very competitive."
The South West : Whitton & Laing in Exeter say: "The slowdown of the sales market has made the rental market very buoyant and the indications are that families are going to continue to rent rather than buy, resulting in a shortage of family homes available to rent."
The South East : Frost Partnership in Staines say there is "huge demand for properties below £1,100 (1&2 bed flats and 2&3 bed houses". In Chichester David Adams of Henry Adams & Partners report a buoyant market "with demand outstripping supply."
So To Sum Up? Paragon argues that the only way is up: "Tenant demand for properties is exceptionally high and is only going to get stronger.
"This comes from traditional tenants – students, immigrants and young professional. Difficulties for would-be first-time-buyers trying to get on the property ladder is also causing them to remain in private rented homes for longer.
"That situation is not going to ease in the short term and pressure on the supply of rented homes will remain. Rents will continue to rise, particularly at the mid to bottom end of the rental market which homes young professionals."
But supply is rising as well, at least in some areas, and this should help keep rents in check. David Adams of Henry Adams & Partners Chichester sums it up nicely when he says:
"I envisage rental levels reaching a plateau as the economy weakens with tenants unable to pay ever increasing rents. However, with the sales market still very unstable, the lettings market will continue to prosper."
Anything Else? Think that's about it – but before we go, here are some facts about the private rented sector:
Facts about private rented sector:
• It’s home to 2.7 million households (CLG Live Tables)
• Private rented housing contains almost 12 per cent of all households and 11 per cent of housing stock. The sector made up only 9 per cent of households in 1988.
• Currently 69 per cent of households rent for less than three years.
• The minimum lease is six months, but most stay for 15-18 months.
• The sector has expanded rapidly in recent years due to BTL: in 2002 there were 275,000 loans, now there are over 1m.
• In 2005 2/3rds of new-build property was sold to investors.
• The proportion of under-30 households renting has grown to 43 per cent compared with 33 per cent in 2001.
