UK rents fall sharply in first quarter

A large increase in supply of rental property has seen rents forced down further as landlords vie for tenants but signs of rising demand may bring landlords respite in the coming quarter reports SpareRoom.co.uk.

Rental prices fell further in Q1 2009, the second consecutive quarter of decline, according to the SpareRoom.co.uk Rental Index, which analyses over 45,000 rental listings.

STEEPER DECLINE IN RENTS

Average UK rents fell 1.6% in the first quarter of 2009, a steeper drop than in the previous quarter. Compared to a year ago, rents were still 1.3% higher, but prices have been forced down in recent months as economic weakness has led to an increased supply of rental properties – including whole properties for rent, existing flatshares making other spare rooms available and households taking in lodgers - and lower interest from tenants.

Rental values for three bedroom houses fell 1.6% in Q1 2009, with average rents down to £1,060 per month from £1,077 in the previous quarter. Rents for flats were also down 1.6%, with the average rental value for a two bedroom flat standing at £747 per month. Annually, house rents have fared much better than flats, with rents for houses 2.2% higher than a year ago, compared to only 0.2% growth for flats.

Overall, rents in the South West were worst hit in the last quarter, with rental values down 2.5% to £878, on average, from £900 per month in Q4 2008. A significant quarterly fall in rents of 2.3% was also evident in London and the North East. Rents were unchanged in the West Midlands, the region least affected by the rising supply and reduced demand for rental properties in Q1 2009 (see appendix for full regional breakdown).

Matt Hutchinson, director of research at SpareRoom.co.uk, said: “Rents have dropped again as landlords face a much tougher time vying for tenants. The supply of property for rent has grown dramatically in the past few months for a range of reasons. Increasingly, frustrated homeowners – unable to sell in an unfavourable housing market – are making their properties available on the rental market. On top of that, more homeowners are taking in lodgers and existing house and flatshares are looking to fill every spare room – and forgoing the luxury of empty space they might have enjoyed in more prosperous times.”

He adds: “Demand has also waned as economic conditions have discouraged overseas workers from coming to the UK and as existing tenants have opted to stay put to ride out the recession. But competitive rents mean there are certainly bargains out there for tenants.”

DEMAND-SUPPLY BALANCE INDICATOR

There are signs that demand from tenants is on the rise and rents may, in turn, begin to increase in the coming months. In relation to supply, demand for rental properties fell significantly in January, but gradually began to rise over the remainder of Q1 2009. In January 2009, there were 1.6 seekers for every rental space, down from 2.1 in December 2008. But, after months of decline (there were 3.4 seekers per property in October 2008), the number of seekers in relation to houses and flats on offer increased in February and March, when there were 1.8 seekers for every property.

Matt Hutchinson explained: “Slowly but surely demand is rising and, at the same time, there is evidence supply levels are beginning to plateau. Confidence is certainly fragile in the housing market, but mortgage approvals were up again in February and this may have implications for the number of properties being made available to rent. It’s still too early to predict, but this may signal a reversal in the downward trend in rents.”