Record rents trap tenants in a vicious circle

Rents in England and Wales – averaging £705 a month – make saving a deposit for a new home almost impossible Rents in England and Wales rose for the sixth month in a row in July to a record high of £705 a month, plunging struggling first-time buyers into a “vicious circle” with spiralling rents making it impossible for them to save the deposit to buy a home. Despite annual rent inflation reaching 4.2%, the latest LSL Property Services buy-to-let index shows the rate of increase is slowing, with July’s figure just 0.6% higher than June’s average rent of £701 and only £29 a month more than the July 2010 average. In the year to July rental prices rose the fastest in London, increasing by 7.1% to a record high of £1,009 a month, followed by the north-east (an annual increase of 5.5%), and the east and West Midlands (both rising by 4.8%). The only region not to experience a rise in the past year was Wales, where monthly prices were static at £547. Month-on-month, the sharpest rental increases were found in the south-east (1.7% in July), Wales (1.4%), the east Midlands (1.4%), and the south-west (1.2%). Prices fell in the West Midlands (-0.6% to £551), Yorkshire & the Humber (-0.2% to £525), and the north-west (-0.1% to £569). But landlords are seeing a squeeze on profits as returns from property investing fell in July. The total annual return on a rental property fell to 1.2% during the month, as annual declines in rental property prices took their toll. LSL said if property values continue on their current trend, a property investor could expect to make a total annual return of 2.5% over the next 12 months. LSL, which surveys 18,000 properties in England and Wales for its index, said demand from thousands of frustrated buyers was underpinning buoyant competition for rental homes, enabling landlords to increase prices. Spokesman David Newnes said it was “unlikely tenants will gain any respite soon”. “This is the peak summer season, and with more renters on the move the market will continue to heat up. Such strong demand and high rental incomes has forced lenders to take notice, and more are returning to the sector,” he said. “As a result of the competition in the buy-to-let market, the range of affordable products is expanding – and lending to investors rose by 21% in the last quarter. Nevertheless, even with the squeeze on landlord finance abating, the new supply will not be enough to meet demand from tenants.” But Newnes said the increasing cost of rental accommodation – alongside the soaring cost of living – was eroding first-time buyers’ ability to save deposits. He added: “First-time renters are also keenly feeling the pinch. As rents climb, so does the size of the average deposit a new renter must find. Thousands of new buyers each year rely on the bank of mum and dad to help fund a deposit. “However, now it is becoming increasingly commonplace for renters to get parental help to fund their first deposit on a rental home, with the typical one-month deposit on a property in London more than £1,000.” Renters turn to flatshare Jonathan Moore, director of Easyroommate.co.uk , said the present situation is difficult for those looking to get on the property ladder: “First-time buyers can’t get mortgages, so demand for rented homes soars. Rents shoot up, tenants find it even harder to save a deposit to buy, and rental demand strengthens further. It’s a vicious circle. “But many renters are cutting costs by turning to flatshare, and this sector of the market is growing. Demand is now so strong that four tenants compete for each room available, and room rents have risen by 1.4% in the last month alone – more than twice the rate of the wider rental market.” LSL’s monthly figure is broadly in line with the Office for National Statistics’s latest consumer prices index , which shows rents in July increasing by 0.7%. However the ONS, which includes rent from social housing in its inflation report, said rents increased by only 3% over the year to July – lower than LSL’s annual estimate. Meanwhile, Halifax has teamed up with credit reference agency Experian to make sure applicants who do not get approved for a mortgage because of their credit score will have access to a CreditExpert membership, offering unlimited access to credit experts. The Halifax CreditExpert service, part of the bank’s first-time buyer pledge, offers customers support and advice on what is affecting their credit score, as well as personalised advice on steps to improve their credit profile. However, they will only get the service free for 30 days – after which they will pay a discounted rate of £9.99 a month compared to Experian’s usual charge of £14.99. Renting property Buying to let First-time buyers Property Housing market Mark King guardian.co.uk

Posted by on August 19, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.