Rental demand is slowing

Figures from the Royal Institution of Chartered Surveyors reveal that rental demand is slowing as rising rents and falling unemployment encourage an increase in the number of house sales.

Its research shows that only 16% more chartered surveyors re-ported a rise rather than a fall in tenant lettings in Q1 2007 – down from 28% in October 2006. This is the biggest indication of a drop in tenant de-mand since Q1 2005.

RICS says this slowdown in demand has been prompted by buyers jumping onto the property ladder to avoid rising borrowing costs.

Landlord instructions fell slightly in Q1, with just 7% of chartered surveyors reporting a rise in landlord instructions compared with 10% in the previous quarter.

RICS says this fall has been driven by a continuing reduction in yields and the signs are that underlying house price growth is beginning to slow.

The percentage of landlords selling their properties increased to 5.2% in Q1, its highest level in two years.

A spokesman for RICS says: “Buyers are returning to the market to avoid rising borrowing costs, signalling a fall in demand for rental property.

“With more supply on the market due to the rush to avoid the upfront costs of Home Information Packs – which now seems a little premature – buyers have found the market less tight than they expected.”

He adds: “Rising borrowing costs and the subsequent drop in yields have also contributed to a worrying time for landlords. Interest rate rises later in the year will have a further dampening effect on the sector but the underlying strength of the economy and an active housing market should ensure a soft landing.”

Andy Wiggans, director of mortgage products at Mortgage Express, says: “These figures reflect the natural ebb and flow of the market. They are not a cause for concern. We have not seen a shift in demand for rental property and landlords are still confident.”