(posted 7073 days ago)Independent > Money > Property > Homes
Friends carry on renting
With fears of falling house prices, young flat-sharers are in no hurry to buy their own homes, says Chris Partridge
08 December 2004Rents are rising over most of the country as both first-time buyers and buy-to-let landlords defer purchasing in the face of the uncertain property market, according to the latest survey by the Royal Institution of Chartered Surveyors (RICS).
The rise is being led by London, where rents have gone up on average by 6 per cent in the year to the end of October. Rents in the rest of the country have gone up by 4 per cent. The South-west is also experiencing a rent boom, but rents in the East have gone down slightly, RICS found.
London and the South-west are the areas with the biggest declines in house prices, as reported in the RICS property market survey last month, indicating that frustrated buyers are renting instead. "There is definitely an increase in demand, particularly at the lower end of the market," says RICS spokesperson Jeremy Leaf. "Uncertainty about market prospects and poor affordability mean that people are opting to rent."
The rent boom is good news for buy-to-let landlords, who have suffered from rapidly increasing capital costs and declining returns. London landlords are seeing an increase in yield for the first time since April 2001, according to the survey. In all other regions yields are still going down very slightly.
The average price for a two-bedroom flat in London is currently £1,517 per calendar month, up about 8 per cent over the year, compared with about 3 per cent for the rest of the country. Rents for one-bedroom flats in London have risen about 6 per cent, with rents over the rest of the country rising by just 2 per cent.
For houses, however, the picture is reversed. In London, house rents have gone down, by as much as 5 per cent for a four-bedroom detached house. In the rest of the country, house rents have risen by between 3 and 4 per cent.
Although buy-to-let landlords are doing much better now, they are still reluctant to invest in more property - which is adding fuel to the rent increases by tightening supply.
Affordability is also an issue, according to Ian Dickson, of Winkworth in Acton. He says: "We saw a dramatic increase in the rentals market in mid-summer. There is now not a lot of difference between renting and buying, as the interest on a mortgage is about the same as the rental." In his area, the main market seems to be for professionals sharing, Dickson says: "The biggest demand is for flats with two double bedrooms, the classic layout for sharers."
Dale Hodgson, of Hamptons in Fulham, warns landlords not to assume that just because demand is outstripping supply, renters will accept lower standards. "Although there is more demand in the lower rental areas, they are not skimping on quality - they are much more demanding than they used to be," he says.
Stephen Ludlow, director of the London estate agent Ludlow Thompson, has seen particularly sharp rent increases for one-bedroom flats. He believes this is due to increased demand from people who have been sharing. Until recently, their next move would have been to buy but they have been deterred by the prospect of price falls so they are upgrading to their own rented place instead. "When people first enter the rental market, they look at the cheaper option of sharing with friends and work colleagues. As their income grows they can afford more privacy and a higher standard of accommodation," he says.
At Ludlow Thompson's Kennington office, for example, the rent for an average one-bedroom flat is now £200 a week, up by £10 from this time last year. According to another survey, by the specialist buy-to-let mortgage lender Paragon Mortgages, the rental market is also being fuelled by young people leaving home earlier but buying their first property later.
According to the survey, people now leave home at 20, whereas the current over-65s left home at 22. The vast majority of people, more than 80 per cent, want to buy eventually, but nowadays only 60 per cent manage to get their own place by the age of 30, - down from 68 per cent.
Both surveys have found that private rents now dominate the rentals market, reflecting the decline of council accommodation. Most of the young people who still live at home expect to move out into rented accommodation, and are four times more likely to move into privately rented, rather than socially rented homes, according to Paragon.
John Heron, managing director of Paragon Mortgages, believes that the figures illustrate that Britain is becoming a much more rental-based housing culture.
"This demonstrates that renting is not a minority practice but rather one that most people do at some point in their lives, and in many cases for long periods of time," he says. "Over a third of people have lived in rented accommodation for more than five years, and 21 per cent for more than 10 years."
© 2004 Independent Digital (UK) Ltd