The Royal Institution of Chartered Surveyors residential lettings survey for three months to the end of October 2004, says rents are rising at their fastest pace for three years.
The rent increases are due to rising tenant demand which is outpacing newly available rental properties in the market. 23% more surveyors report a rise than a fall in tenant demand over the past three months, a 9% increase since July.
The rise in demand is a result of interest rate rises. Potential buyers are opting to rent, sitting out the uncertainty currently characterising the housing market.
There has also been a slowdown in rented property available as the Buy-to-Let boom tails off.
Rental demand for both flats and houses is up on the same quarter last year by 23 and 225 respectively.
Private sector tenants are dominating the market, accounting for 81% of lettings. Corporate tenants account for 95 of the market, down from 11% last quarter.
All regions have reported an increase in demand for rented properties. London saw the greatest rises in demand with the South West not far behind.
The average price for a two-bed flat in London is currently 1517 per calendar month. These are also the areas experiencing the greatest decline in house prices, according to the latest RICS housing market survey.
Gross capital yields are beginning to level out. Yields rose in London for the first time since April 2001. All other regions have shown a marginal fall.
Jeremy Leaf, spokesman at RICS, says: “There is definitely an increase in demand, particularly at the lower end of the market. Uncertainty about market prospects and poor affordability mean that people are opting to rent.
“Sellers and agents are facing a different breed of buyer. Enthusiastic buyers keen not to miss out on getting a foot on the property ladder have gone. Now the attitude of why rush is influencing demand for rental property.”