How the mortgage crisis is allowing landlords to push up rental rates

Published 04th Mar 2011

Cash-strapped adults who can't afford to get on the property ladder are being hit by rapidly rising rents, research has shown.

Strong tenant demand and a shortage of available properties are driving up prices.

And with fewer lenders giving out mortgages, the issue will only get worse as more and more find themselves needing to rent.

Forty per cent more surveyors reported increases in rents during the three months to the end of January than those who didn't, the highest level recorded by the Royal Institution of Chartered Surveyors since it first began the survey in 1998.

The group said the ongoing problems in the mortgage market and the high deposits lenders demanded from borrowers, were preventing many people from becoming homeowners, leading to rapid growth in tenant demand since late 2009.

About 32 per cent more surveyors reported a rise in people looking to rent than those who saw a fall, in the latest survey, with houses more in demand than flats.

But at the same time, the supply of rental property continued to decrease.

RICS said there had also been a shift in who was renting properties, with stock from private landlords falling from 80 per cent of the market before 2009 to around 70 per cent now, possibly as a result of buy-to-let investors also struggling to raise the mortgage finance they need.

Meanwhile, the economic downturn has led to the proportion of social tenants nearly doubling, rising from 6 per cent two years ago to 11 per cent now.

However, surveyors remain optimistic that the market will continue to be buoyant, with a balance of 37 per cent predicting further rent rises during the coming three months.

Jeremy Leaf, a spokesman for RICS, said: 'The current buoyant state of the rental market is likely to persist for some time to come, given the challenges facing the sales market.

'It is unlikely that finance for first-time buyers will become much more readily available, while uncertainty over the economy may also deter potential homebuyers.

'As a result, demand for property to rent will remain strong and in all probability will continue to outstrip supply.

'In this environment, rents will remain on an upward trajectory adding to the pressure on many households whose incomes are already being squeezed by rising inflation prices and the hike in VAT.'

But the group added that there were 'significant' regional differences, with rents particularly strong in London and the South East, but they were falling in the South West.

Demand for rented accommodation is also strongest in the South East, while it picked up in the Midlands and Wales during the three months.

New instructions fell most steeply in the North, although they rose in the Midlands.

Source: ' ThisIsMoney '

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