Published on : Tue, 12 Apr 2005 00:00GMT
by : Andy Clarke

The property market seems to be cooling off, house prices are stabilising. The borrowing interest rate is frozen and seems static - at least until post election. However, where are the buyers? For answers look to the lettings market. The rentals market is facing an increasing shortage of properties as reported in the latest quarterly survey of the Association of Residential Letting Agents (ARLA).

Reading between the lines of the report, one can safely assume that more people, potential first-time home buyers, were turning towards the rental market as they find property prices prohibitively high.

The ARLA report marks an increase in achievable rent levels during the last six months although average rental returns registered a slight decline.

The shortage in rental properties was felt and confirmed by nearly one third of all ARLA member offices that reported having fewer properties available than tenants in the first quarter of 2005. This marks an increase in demand for rental properties by 23 percent which is the highest level demand reached in three years.

That being the case in most parts of the UK, there were pockets and areas which were an aberration from the general scenario in the rentals market. Less than 40 percent of lettings agents reported an oversupply of rental property. Some of these may be agents from prime central London. Over 50 percent of ARLA members based here had more rental properties available than tenants, which is a great improvement since the previous quarter’s (Oct-Dec’04) oversupply of properties.

Correspondingly, London’s rental returns too have improved during the Jan-March’05 quarter: the average return has increased from 4.6 percent to 4.8 percent. Overall, the differences in reported rentals throughout the country were small. Average weighted rentals (AWR) for flats dropped from 5.3 percent to 5.2 percent while the AWR for houses also slipped just a wee bit from 5 percent to 4.9 percent.

The average rent of a house is generally more than that of a flat; this difference was most striking in prime central London where the average rent of a house is as much as 57 percent more than that of a flat. A house in prime central London fetched an average rent of £2,604 a month while a flat in the same area fetched £1,663. Outside London and the South East a similar difference was observed with £828 a month for a house and £583 for a flat.

Also, you will find that property prices across the country have more or less stabilised. The capital asset value of rented properties has largely remained stable barring a few exceptions like the South East where values rose by 1.5 percent. In prime Central London, property values actually fell by 2.7 percent.

Average void periods i.e. the period between lettings was around a month everywhere give or take a few days.

The ARLA survey was responded to by 500 letting agents and over 300 investment landlords. The effort had the added support of the NatWest Mortgage Services, Paragon Mortgages, The Mortgage Business, GMAC Residential Funding and Birmingham Midshires, among others.