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Record rents enticing buy to let investors

First time buyers 'wait and see'

Buy-to-let investors are pouring back into the property market as rents rise at a record pace, figures showed today.

Demand for rented property in Great Britain is being boosted by recent house price rises which have left many would-be first-time buyers struggling to get on to the property ladder.

At the same time rising uncertainty about house prices and a slowing property market are causing many would-be buyers to adopt a “wait and see” approach, according to the Royal Institution of Chartered Surveyors (RICS).

The group said during the second quarter of the year 29% more surveyors reported a rise in the number of people renting, than those who saw a fall, up from 15% during the previous three months.

At the same time 20% more surveyors saw an increase in investment landlords buying properties than those who saw a fall.

This was up from just 8% during the previous quarter and was the first time the figure moved above its long-term average of 16% for 15 months.

Rising rent

The group said rents were now rising at their fastest pace in the surveyors’ history, and they are expected to reach record levels during the coming quarter.

Overall, a record 39% more surveyors reported seeing an increase in rents during the period, up from 29% during the previous three months, although total yields fell for the fourth consecutive quarter as house price growth slowed.

But RICS said there was also evidence that some highly geared landlords may be feeling the pinch from higher interest rates.

In London and the South East, where investment landlords tend to be more sensitive to interest rate changes, the number of people selling properties rose above the survey’s average.

Across the country as a whole, the number of surveyors offloading properties also rose at its fastest pace for two years, although with just 6% of surveyors reporting a rise it stayed well below the peak of 10% reached during the second quarter of 2004.

Property ladder

Going forward surveyors expect rents to grow at a record rate during the coming months, particularly for flats, as first-time buyers delay getting on to the property ladder until it becomes clear what impact recent interest rate rises will have on the market.

RICS spokesperson Jeremy Leaf said: ‘Current economic uncertainty has created an ideal platform for buy-to-let investors to cash in on rising rental levels.

‘Many would-be buyers have decided to wait and see how the interest rate cycle will affect the market.

‘Rising rents are offering some compensation for landlords that are experiencing higher borrowing costs although buy-to-let investors will struggle for funding in 2008 as lenders become more discriminating, especially for sub-prime properties.’

Figures from the Association of Residential Letting Agents, also released today, said tenant demand outstripped supply in all areas of the market.

At the same time the level of rents also rose in all areas to an all time high, continuing a trend which started at the beginning of the year.

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