Your home is your castle - but are there enough castles to rent?

With the UK rental market continuing to recover (rents up £10 since April and at their highest since February), a shortage of houses to rent may be starting to emerge, as investors (both professionals and ‘accidental’ landlords) decide to dispose of houses in a strengthening sales market rather than rent them out.

However, the market remains awash with flats, with surplus properties available for rent tending to push rents downwards, the latest FindaProperty.com Rental Index reveals.

Overall, 82% of households (including owner occupiers and renters) live in houses as opposed to flats, while in the private rented sector 61% of households live in houses (based on the latest Survey of English Housing). This British preference to live in a house may be helping the rentals market too, with demand for an independent entrance and a roof pushing rents up for four consecutive months - by 2.5% or £21 from £847 in April 2009 to £868 in August. In contrast, flats are languishing, with a 2.6% decline in asking rents since February - as rents asked for by landlords fell by £20 from £769 to £749 pcm.

The key to the different relative performance of the two property types is supply. Available houses have declined by a massive 16% since February, partly based on tenant demand and partly because landlords have been taking advantage of a recovering property market to sell. There remains an oversupply of flats, however - with 13.4% more available to rent now than six months ago.

Overall the rentals market continues to consolidate its recovery, but it is mainly led by houses, despite the fact that this type of home represents less than a third of total property available. Rents have risen by 1.2% or £10 pcm just since April, and while they remain significantly lower than in 2008, they appear to be following a consistently upward trend.

Michael O’Flynn, Director of FindaProperty, comments: “They say an Englishman’s Home is his Castle - but in the current rental market it’s clearly a house and not a flat. Given recent difficulties in raising finance and worries over the economic outlook, renting is becoming more popular with families whose needs are better met by a house rather than a flat. That means demand for houses is outstripping demand in many areas. If the trend of more people looking to rent houses continues, we could start to see a worsening shortage of suitable houses available for applicants. Yields on houses have traditionally lagged behind those on flats, but we may see higher rents and yields as houses become scarcer and more in demand.”