The credit crunch may be preventing thousands of people from getting on the property ladder, but research suggests that renters are rarely had it so good.
Despite economic instability and restricted mortgage lending leading to a rise in demand for rented property, an ever increasing supply of property continues to put downward pressure on rents. This is down to the large number of people unable to sell their property, leaving them with little choice but to rent out their homes instead. At the same time, people with second homes are increasingly looking to make some extra cash.
This surge in the supply of letting property has pushed rents down by nearly 5% over the past 12 months; the average monthly rent paid in February was £830, down from £872 the same month last year, according to a new rental index from Findaproperty.com.
The picture for rental demand varies dramatically on a regional scale. In London and the South East, average rents have fallen by 5.9% and 6.1% respectively in the past year. In comparison, the North East has actually seen rents increase by 10% since February 2008.
Meanwhile, average rents have fallen by 14.3% in the North West. Findaproperty.com attributes this fall to the significant increase in available property, especially in the Manchester area.
Andrew Smith, head of research at Findaproperty.com, says renters continue to benefit from the property downturn. As a result, they are more likely to be moving home in search of a better deal.
“Tenants are the real winners in this situation – they have a huge stock of property to chose from, often high-quality owner-occupier stock – and are in a strong position to negotiate on rents and/or services,” he explains.
"Tenants are becoming more demanding as the market swings in their favour and landlords are now less likely to receive the uplift in rents at renewal that they might previously have achieved.”
Some landlords are stumping up extras such as cable and satellite TV, weekly cleaners or even improving their property to make it more appealing, Smith adds.
However, the pressure of falling rents might be proving too much for some landlords, many of whom might also be struggling to pay their mortgages as interest rates increase. There have been concerns that such a climate could prompt buy-to-let investors to ‘jump ship’ – a move that would cause property values to plummet even further.
However, Smith is not convinced: “Despite falling rents and increased competition, we do not expect investors to abandon the market. Gross yields remain stable and could improve as house prices continue to fall.”
In addition, he reports more cash-rich investors, keen to take advantage of falling house prices, are now taking an interest in buying up rental property.
With City workers among the first victims of the recession, rents across the capital have dipped by nearly 6% over the past 12 months. However, average rents vary wildly, with areas that are heavily dependent on City workers experiencing significant rental price falls. More ‘affordable’ outer London boroughs are proving much more resilient.
For example, rents in Kensington & Chelsea have fallen by 9.3%, rents in the City of London by 11.7% and Islington by 8%. Areas such as Bexley, Greenwich and Waltham Forest, meanwhile, have all seen rents increase.
Another rental report, this time from Cluttons estate agency, suggests that London-based tenants with secure jobs are seizing the opportunity to climb the lettings ladder in search of bigger properties, in better areas, for the same price.
The firm says prospective tenants are viewing an average of 12 properties before committing, up from just four a year ago. At the other end of the scale, those who have been affected by unemployment or struggling with the cost of living, are tightening their rental belts and looking to move down the ladder.
Lynn Hilton, partner for residential lettings at Cluttons, says: "London's tenants are enjoying the greatest choice of rental property for years, combined with cheaper rents and greater negotiating power. The savviest among them are making multiple offers on properties and then choosing the best deal, while jittery landlords, keen to keep their properties tenanted, are agreeing deals.”
The location of a rental property is not the only influence on rent – the size and type of property also have a strong influence on its appeal to tenants.
According to Dreweatt Neate estate agents, rents on homes with four or more bedrooms have been reduced by as much as 25%. Two-bedroom properties, meanwhile, have seen rents fall by between 10% and 15%.