There is an increasing disparity between the rental market in central London and elsewhere in the UK. According to the latest figures in the HomeLet Rental Index, the average cost of accommodation in the capital stood at GBP 1,156 per month in March, compared to the GBP 764 recorded for the UK as a whole. The cost of renting a home in London is now 6.1 per cent higher than it was a year earlier, with a monthly increase of 0.2 per cent registered between February and March. However, rents in the city are still lower than their peak recorded in September last year, although they appear to be on an upward trend.
The Hometrack survey published earlier this week also highlighted the growing difference between the London rental market and the lettings sector elsewhere in the UK, pointing out rental growth slowed everywhere except the capital in 2011, compared to 2010. The firm noted 22 per cent of lettings in London cost more than GBP 2,000 per month, while the "core" segment of the market - where tenants typically pay between GBP 1,000 and GBP 1,500 per month - accounts for 37 per cent of the private rented sector (PRS). By contrast, in the rest of the country around half the rental market is comprised of properties that are let for between GBP 500 and GBP 750 per month.
According to HomeLet, an increasing number of tenants in London's PRS are sharing accommodation in order to bring the cost down, although the average amount paid in shared properties in London is still well above that elsewhere in the UK. Ian Fraser, managing director at the firm, explained alterations to the Local Housing Allowance system may also result in changes to the capital's rental sector, with some tenants having to move to more affordable districts of the capital, as their benefits can no longer cover the cost of their accommodation. However, he stressed it is not only people on low earnings who are struggling with rising rents in London. "Rents in London were 6.1 per cent higher than last year, but average tenant incomes in the region were 3.5 per cent lower than last year. As with homeownership, rented accommodation is become less affordable in the capital and many household budgets are really being stretched," Mr Fraser asserted.
Director of SpareRoom Matt Hutchinson recently urged landlords to think carefully before increasing the rents on their properties, pointing out that "rents can only rise so much before people simply can't afford them". He stressed the need for realistic pricing in the market, otherwise property investors will be left with empty homes that are not generating any income. The Hometrack research suggested affordability will be the key factor that holds rental growth back, with the organisation predicting a two to three per cent increase in average lettings charges across the UK by the end of 2012. This will help boost gross yields to 5.5 per cent by the close of the year.
Meanwhile, Knight Frank recently stated poor job prospects in the City are holding back London's rental market, with the number of viewings increasing in the first quarter of 2012, compared to the same period a year earlier, while the volume of tenancies agreed fell by seven per cent. According to the firm, this indicates tenants are looking, but are unwilling to commit to a new lease. The organisation cited figures from Morgan McKinley's London Employment Monitor, which revealed vacancies in the financial services sector fell by eight per cent between February and March this year and are down 57 per cent on an annual basis.
- Monday 23 April 2012