Rents recede in buy-to-let

Published 23rd Aug 2008

Rents recede in buy-to-let

Buy-to-let property owners are becoming increasingly concerned about falling rents, just as many need to refinance to more expensive, less flexible mortgage deals.

Data from the Royal Institution of Chartered Surveyors this week showed that landlords were more pessimistic about rental prices now than at any point in the past 18 months. Property owners in London were the most gloomy, with just 9 per cent more landlords expecting rents to rise than fall over the next three months, compared with 28 per cent in January.

The lettings market in London has become saturated in recent months as would-be vendors have been unable to sell their homes and have been forced to rent them out. Although tenant demand has risen, this has not soaked up the extra supply.

Landlords are therefore increasingly having to accept lower offers and accommodate tougher requirements from tenants to avoid their properties lying empty, according to estate agents.

“Landlords are having to be flexible on price and comply with tenants’ demands,” explained Kate Whotton, lettings director at Hamptons International.

She said landlords were starting to set asking prices at more realistic levels – of around 5 per cent lower than a year ago. Other agents have already seen rents fall by 10 to 20 per cent, particularly in central London.

Tenants were also frequently submitting “wish lists” demanding that properties were repainted or wooden floors laid. “While a year ago landlords could have said ‘no’ to these requests, they are now having to comply,” added Whotton.

Agents said some landlords were still achieving rent increases when existing occupants renewed their lease, but they predicted tenants would start to negotiate harder over the next few months.

Rents are expected to fall further, particularly for large family homes, as landlords will have to fill vacant properties.

“Until July there was a real stalemate as landlords needed top dollar and tenants were saying they couldn’t afford it,” said Judienne Wood, lettings director at Kinleigh Folkard & Hayward, the agent. “But suddenly they are now negotiating.”

She said that although landlords were lowering prices, they were not willing to drop too much as they simply could not afford it.

Mortgage brokers estimate that around 20,000 fixed-rate buy-to-let mortgage deals will expire each month for the remainder of the year. The holders of these loans can expect a sharp jump in costs and will have to meet more stringent lending criteria. One serious obstacle for landlords needing to refinance is that lenders have tightened controls on rental cover. Many will have to find more income just as rents are coming under pressure.

Evidence is also emerging that more tenants are struggling to meet their rent payments.

New figures from the Ministry of Justice showed that landlord possession orders were 8 per cent higher in the second quarter of 2008 than they were during the same period last year, albeit slightly lower than the previous three months.

Court orders can be sought by landlords who want to evict tenants in arrears with their rent, or those who are facing repossession by mortgage lenders.

Recent research from Axa, the insurer, found that 13 per cent of renters had slipped into arrears in the past 12 months, of which half had done so in the past three months.

Malcolm Harrison at the Association of Residential Lettings Agents said: “We aren’t hearing anecdotal evidence of tenants not paying their rent, but they may well be under pressure.”

Source: ' FT '

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