Demand for flats falls away but rents remain firm

The growth in tenant demand for rental property moderated as demand for flats fell away due to an oversupply in the market, says the latest RICS (Royal Institution of Chartered Surveyors) Lettings Survey.

Rental growth continued its upward curve as the impetus for would-be-buyers to step onto the property ladder remained subdued by accessibility issues, rising uncertainty and a slowing housing market,

20 percent more Chartered Surveyors reported a rise than a fall in tenant lettings, down from 28.5 percent in the last quarter. Significantly, demand for family homes remains stronger than for flats due to an oversupply of newbuild. 25.2 percent more Chartered Surveyors reported a rise than a fall in demand for houses compared to 16.9 percent Chartered Surveyors who reported a rise in demand for flats, down from 36.9 percent last quarter.

New landlord instructions (an indicator of buy-to-let activity) dropped below the long run average of 16 percent. 11 percent more Chartered Surveyors reported a rise in landlord instructions compared to 19 percent in the previous quarter. An uncertain backdrop may have dissuaded new investors in the buy to let market. The ongoing credit crunch is likely to have had some impact by encouraging banks and building societies to be more selective in their lending criteria.

The survey suggests more landlords are dropping out of the market as the effect of interest rate hikes seeps through. The percentage of landlords selling their properties when tenant leases expire again rose from 6.1 to 6.5%. It has now climbed to its highest level since January 2005.

Looking forward, the pace of rental growth is projected to slacken while still being strongly positive. Moreover, surveyors are generally more upbeat about the prospects for houses as opposed to flats, where in broad brush terms, there is perceived to be at the very least an adequate level of supply.

RICS spokesperson Jeremy Leaf commented: “A combination of the tightening lending criteria and successive interest rate rises has started to hit the buy-to-let market but with the drop in capital gains tax due in April next year, many landlords will resist selling until the spring.

“With rents still on the increase many would-be-buyers will find accessing the housing market even more difficult as they struggle to raise the capital for that first important purchase. However, many landlords will still take solace from uncertainty in the economy and enjoy the gains from rising rents.”