Buy-to-let market slowing says RICS

Buy-to-let instructions for Q3 2006 rose at their slowest pace since Q2 2005 reveals the Royal Institution for Chartered Surveyors.

Chartered surveyors reporting a rise rather than a fall in instructions to let halved from 13% in Q2 2006 to just 6% in Q3.

RICS says the slowdown points to a deterioration in landlords’ margins triggered by recent interest rate rises and a renewed fall in gross yields.

Only 9% more chartered surveyors reported a rise than a fall in instructions to let flats, compared to 19% in the last quarter.

Tenant demand for rental property remained solid this quarter, although the pace eased back compared to the previous three months.

Continuing demand from tenants reflects a combination of factors, including a strong economy and rising migration. Chartered surveyors report that migration from Eastern Europe has impacted upon the demand side of the market as demand exceeded supply for a tenth consecutive quarter, putting upward pressure on rents.

The slight reduction in tenant demand – especially for flats – is evidence that some would-be first time buyers have been able to purchase a property.

Surveyors expect rental levels to rise further, though confidence has edged back slightly after reaching record levels. Gross yields declined for the first time in two years, as house prices rose faster than rents, squeezing income investors. Gross yields were 4.6% in October compared to 4.8% a year ago.

A spokesman for RICS says: “The recent interest rate increases have painted the buy-to-let market as a less than favourable investment. With profit margins potentially reduced, affordability conditions could bite hard into investor’s pockets and push up rents if interest rates rise further in 2007.

“But investors continue to express a high level of confidence in the longer-term buy-to-let market as selling activity remains low. With interest rates still relatively low and the economy gaining steam, first time buyers are again placing a tentative toe in the property market.”