Mortgage market forces potential buyers to rent

22 May 2008 / by Rebecca Sargent
The rental sector is thriving in a time of tight credit, according to the latest survey from the Royal Institute of Chartered Surveyors (RICS).

The figures show that the number of surveyors reporting a rise in instructions to let property rose 29 per cent in April. The rise in activity in the rental market is thought to be a direct result of the financial turmoil being experienced in the mortgage market.

Banks are reluctant to lend to borrowers with a less than perfect credit history report and will only oblige in return for a deposit of around 25 per cent. Consequently, would-be buyers are turning to the rental sector, as the research from RICS suggests.

The survey of members indicates that landlords are part of a minority of people who are benefiting from the credit crisis. As supply increases to feed demand, "many are taking advantage of rising rental yields while they wait for the effect of the credit crunch to abate."

The results showed that 23 per cent more surveyors reported a rise in gross yields for the first quarter of 2008 compared with five per cent in the previous quarter.

Unsurprisingly, RICS also reported that tenant demand has increased for 28 per cent more of its members, up from 17 per cent last quarter. And, an indicator that potential buyers are affected is that demand for family homes and flats both increased, despite a hike in prices.

RICS spokesperson James Scott-Lee commented: "The sales market's loss is the lettings market's gain. Some would be sellers are retreating from selling and letting or re-letting their properties as they wait for mortgage lenders to offer buyers a more favourable lending criteria. While transaction numbers in the sales market are weak, many are taking advantage of rising rents and yields in the private lettings sector."

In response to the increased activity in the private rental sector, The National Association of Landlords (NLA) urged those profiting from it to work towards dispelling the popular notion of renting being second best to buying.

The NLA also called for local authorities to tackle 'rogue' landlords and those who offer substandard property, which it believes are doing nothing for the reputation of renting. David Salusbury, NLA chairman, said: "Rented housing should not be seen as second best. According to Government figures, 81 per cent of tenants are on good terms with their landlords and it is good to see that the significant contribution landlords make to the housing mix has once more been acknowledged."

© Fair Investment Company Ltd