Landlords struggle to meet demand for rental property

13 September 2010

The future looks bright for the buy-to-let sector as demand rises but there is a sting in the tail.

The number of new tenants signing up for rental property hit a new high in Q2, according to Countrywide. And a record 20,000 new entrants were welcomed to the rental market in July.

This increased demand is in stark contrast to the number of rental properties coming to the market.

In the three months to June the number of homes available Countrywide’s latest quarterly survey also indicated that June’s hike in Capital Gains Tax for buy-to-let investors from 18% to 28% for higher rate taxpayers has done nothing to deter new landlords entering the sector, with 6% more first-time investors coming to the market in Q2.

Excess demand has pushed up average rents, with four-bedroom family homes seeing the greatest price rise of 4% compared with Q1 to reach £1,090 per calendar month.

Overall, there was an average of 5.5 tenants chasing every available property in Q2 - up from 4.9 in Q1.

As a result rental homes are now let in an average of 14 days - three days fewer than in the previous quarter.

Demand is set to rise further as record numbers of students head off to study in the autumn.

But the bad news is that landlords are struggling to find the financing to take advantage of increasing tenant demand and rising rents.

While 35% of landlords polled by Paragon expect demand to continue to rise over the next year, and a fifth intend to invest in Q3, over half have found accessing buy-to-let funding difficult.

We could be witnessing a generation for whom their home is not going to be their largest financial asset

Meanwhile, rents are being pushed higher as a result of increased tenant demand and a shortage of residential letting properties, according to the Royal Institution of Chartered Surveyors.

The RICS survey showed that 26% more chartered surveyors have reported a rise in demand for property rather than a fall, the second consecutive month that letting demand has risen above the long-term average.

This is in contrast with the same period last year, when 29% more surveyors saw falling rents.

The outlook for rents also remains positive, with 33% more surveyors expecting rents to increase rather than fall over the next quarter.

More government support for landlords is needed to enable the increased demand for rental property to be met.

It is possible that we are starting to see a cultural shift away from home ownership and towards long-term renting.

It seems younger people are either less inclined or certainly less financially able to get a foot hold on the property ownership ladder.

We could be witnessing the start of a generation for whom their home is not going to be their largest financial asset, which will have broad implications for the financial services sector and economy.

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