Tenants’ extra

Former Daily Telegraph journalist Andrew Cave finds that rents are rising across the country

Andrew Cave

“Tenants renewing their agreements are typically paying between 5% and 10% more than a year ago.”

It is true of the UK market that residential property is always in demand. People need somewhere to live, so when house sales are hit by a downturn or a period of uncertainty, the rental market takes up the slack.

Evidence suggests that this is happening right now and is leading to rising rents as first-time buyers and foreign workers defer buying homes and rent instead, amid uncertainty over house prices due to the impact of the global credit crunch.

At agents Winkworth in Westbourne Grove, London, it was a record January for lettings, with business volumes 20% higher than at the same time last year.

In addition, the Surrey Quays branch of Kinleigh Folkard & Hayward told the Financial Times that it had been a “fantastic month” and that the office was enjoying a “huge boom”.

Winkworth also reports that tenants renewing their agreements are typically paying between 5% and 10% more than a year ago, while new occupants face rent increases as high as 20%.

Kinleigh Folkard & Hayward say this boom in demand has led some tenants to seek long-term lets of 18 months or two years in order to put some certainty on the level of rent they will be paying and safeguard themselves against more annual rises.

Yields set to grow

Rents rose by 15% in central London in 2007, though price rises of houses meant that gross rental yields were squeezed down from 4.4% to 3.9%. However, agents Knight Frank expect rents to rise by 4%-5% in London this year and believe that yields could move back to 4%-4.5% as prices stagnate or fall.

Some agents expect improving yields, along with anticipated further falls in interest rates this year, to spur more activity in the buy-to-let market.

They argue that enterprising landlords with a longer-term mindset may see the current uncertainty in house prices as an opportunity to buy more cheaply and optimise their rental yields.

In particular, auction houses are reporting an increase in the number of repossessed properties on the market and noting good demand from investors keen to capitalise on any weakness in house prices.

Regional variations

However, there are still significant variations in rent trends across the UK. According to Countrywide Residential Lettings, London and the Home Counties continue to be the nation’s regional hotspot, with rents of properties through the agency’s operations there rising by 9.3% in the 12 months to January.

Next comes the South West, with a 6.7% increase, and the South Coast and Isle of Wight, where rents rose 5.8%. Further up the country, it was a very different picture, however, with rents rising by 3.3% in the North of England and actually falling by 3.5% in the Midlands.

Maldwyn Jones, Divisional Director for the southern region of Countrywide Residential Lettings, says the Midlands fall may be due to changes in the profile of the properties that his agency dealt with last year.

However, he adds: “There is definitely still a North-South divide and the rent hotspots are in the Home Counties, which reflects the higher cost of properties.”

Saturation point

Within the South East region, there are also huge variations. Primelocation.com, a property portal used by many leading estate agents to list their properties, says that the usually reliable prime London rental market has been wobbling in recent months as stock levels have saturated the market and monthly rental price growth has stalled.

However, it says this is now changing, with the stock of rental property on the market catalogued in its January market report 6.1% lower than that of a month earlier – its first drop in volumes since October 2006.

The reduction in supply has been accompanied by a rental rise of 2.9% between the two months, pushing the average prime London rental price to record levels.

Its average rent of a prime property now ranges from £548 a week in Islington, the City and Docklands to £1,231 a week in central London.

This has been achieved despite a softening in demand for rental properties from the corporate lettings market, which has been hit by falling recruitment rates.

Ian Springett, Primelocation.com Chief Executive, says: “The prime London lettings market continues to perform well. While there has been a decline from the corporate lettings market, private residential letting demand remains very strong.”

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