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Assetsure News 12th September 2007
Property Rental Prices Increase as
Property Prices Slowdown
Despite the growing level of personal and
mortgage debt, Royal Institution of Chartered Surveyors (RICS) reported that
demand for rental property remains strong and rental values are increasing. Yet
again the shortfall in quality affordable rental accommodation is sustaining the
rental market even at a time when property prices appear to be slowing and all
falling in some areas of the southeast of England. In particular, worries felt
by first time buyers who are choosing to put off from buying their first
property and instead take rental accommodation, is helping to maintain rental
values at record levels. Back in 2002 and 2003 rents fell due to worries about a
property crash. Since then, prices have stabilised and now rental values are
predicted to peak in the autumn of 2007, increasing by an average of about 12
per cent per year in the most desirable areas.
In addition, the increase in the rate at
which new houses are being built (relative to the amount of land available for
developers to build new affordable homes for key workers) is continuing to put
pressure on property prices and hence keep first time buyers priced out of the
market. The government target of three million new homes by 2020 appears vague
and somewhat unachievable without the relaxation of current guidelines and
policies with regard to land usage and new builds. Despite the fact that a
record proportion of mortgages are now
buy to let
mortgages (approximately 10 per cent of the total) used to finance rental
property, the demand continues to outstrip supply and hence rental values have
increased. The average rents in London is 525 pounds a week. UK house prices in
July 2007 have risen over 12th per cent in the year.
Landlords appear to be worried too despite
increases in rents.... There has been an increase in the number of sales of
investment property over recent months as landlords have seen their assets
increase two or three fold over the last 10 years are now cashing in and taking
the profit. In particular, the worry about rises in interest rates pushing up
the cost of buy to let mortgages is making prospective new landlords think twice
before dipping a toe into the buy to let market. In addition, the collapse of
the USA housing market where landlords have a borrowed too much money, have
afflicted credit markets, and it appears that this may cause a ripple effect
from across the Atlantic into the UK Mortgage market. This comes at a time
when the Government is struggling to keep inflation down without rising interest
rates. Mortgage lenders have seen the impact of the US lending market and
are becoming more risk averse when dealing with first time landlords.
The Association of Residential
Lettings Agents' (ARLA) published results this week which reveal tenant demand
now outstrips supply in all areas of the rental market. In addition a recent
survey by RICS found that 20 per cent increase in new landlord instructions in
the last quarter of 2007.
So despite increases in rental
values, the average yield has fallen as borrowing and prices climb ever higher
for landlords . There is a mixed picture of slim yields for landlords, an
increase in the proportion of landlords selling their assets and a large first
time buyer market reticent to jump on the property ladder until prices have
stabilised or the incomes have increased. The losers in this battle are tenants
who on average, will have to pay a higher rental values in 2007.
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Copyright Assetsure Limited 2007
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