Rental demand continues to grow

Demand for rented residential property in the UK continued to grow during the fourth quarter of 2007, according to the Royal Institution of Chartered Surveyors (Rics).

However, the rate of growth in the market fell for the second consecutive quarter, and is now below the long run average for the sector.

Rics finds some 16 per cent more surveyors reported a rise in new tenant lettings than those reporting a fall – with demand increases strongest in the East and south-east.

The figure was down from 20 per cent in quarter three of 2007 – with demand slowing dramatically in London and the north.

Private tenants led the, moderate, increase in demand for residential property.

According to Rics, some 82.1 per cent of all properties were rented to private individuals, the highest percentage since 2007.

Students (1.7 per cent), social tenants (5.7 per cent) and corporate demand (7.1 per cent) accounted for the remaining properties in the market.

However, new instructions to let property fell for the first time in the survey's history – with one per cent more surveyors reporting a fall in new instructions than a rise.

Rics apportion the responsibility for this trend to the continued effects of the credit crunch – with the number and variety of buy-to-let mortgages available to investors coming under strain.

"While banks remain cautious about offering loans, demand for rental property will continue to increase with many would-be-buyers unable to make the jump to home ownership," said Rics spokesperson Barry Hall.

Yet, even during a period of moderating prices in the wider market, landlords have continued to see rents and yields increase.

Some 27 per cent more surveyors reported an increase in rents than a fall during the final quarter of 2007. However, this was down from 31 per cent in the third quarter.

According to Rics, gross yields also increased at their fastest pace since quarter three of 2005, after more of less flat growth during the last two quarters.

"Established investors continue to reap the benefits of the current uncertainty in the housing market and have been enjoying the fruits of rising rents, but new investors are struggling to get the necessary finance to enjoy this buoyant sector."

"However, some landlords at the margins may desert the market after the drop in capital gains tax occurs in April."