Prime central London rents are falling heavily, despite substantial increases in supply, according to the results of the last quarterly survey by residential agents Knight Frank.
Substantial falls
Rents of prime central London properties fell quickly in the first quarter of this year. They dropped by 7.3%, the second largest fall since Knight Frank began surveying the market, and are now 18.2% below their level of a year before. This brings prime rental levels in the capital down to the prices of nine years ago.
The fall in rents is despite a comparable increase in demand - which has jumped by 20% over the last year. However, a massive 67% increase in the supply of properties to rent has had the overall effect of pushing rental prices down.
In prime areas of outer London, rentals have fallen by 20% in just one quarter.
'Dramatic' changes
Liam Bailey, head of residential research at Knight Frank, says: "Rents in prime central London have fallen dramatically over the past six months, with falls of 9.6% and 7.3% recorded for the final quarter of 2008 and the first quarter of this year."
This reflects the crisis in the wider property market, with the supply of properties for rent expanding substantially. Developers and frustrated vendors have abandoned attempts to sell properties and have instead become 'reluctant' or 'accidental' landlords. "It is this increased choice that is pushing down rents," says Bailey.
However, Bailey points out, this downward pressure on rents is being felt more on prime properties than at the cheaper end of the market, because of the intense strain on personal and corporate budgets.
The rise of the reluctant landlord
The growth in the phenomenon of the reluctant landlord was confirmed by a survey of the private rented sector conducted by the Association of Residential Letting Agents (ARLA). Some 94% of lettings agent respondents said more properties were being rented out by would-be vendors, who had abandoned property sales in the current market conditions. The trend was consistent across property types, reported ARLA, with 92.2% of landlords in prime central London reporting increased lettings by reluctant landlords.
Ian Potter, ARLA's operations manager, says: "These figures confirm the trends we have been hearing from ARLA's members that sellers looking to downsize are turning to the lettings market after being unable to sell."
Legal obligations
Potter added that reluctant landlords must understand their legal obligations and urged the Government to properly regulate their activities.
This warning was echoed by specialist buy-to-let lender, Paragon Mortgages, which believes that 'accidental landlords' may be unaware of their legal obligations. It estimates there are 50 Acts of Parliament and 70 sets of legally binding regulations that landlords must comply with.
Ignorance is no defence
"The onus is on the landlord to make sure they comply with all regulations and they are liable if something goes wrong, even if they employ the services of a letting or managing agent," says John Heron, Paragon's managing director. "Ignorance of legislation is not a defence."
He adds: "People that are letting out property they have been unable to sell are unlikely to have a detailed understanding of the legal requirements they have to comply with. For example, do they have an Energy Performance Certificate for the property, or do they have a Gas Safety Certificate?
"What have they done with the tenant's deposit and have they got adequate insurance in place? Failure to comply with certain regulations could not only result in heavy fines, it could also mean a custodial sentence.
"In addition, owner-occupiers could contravene their mortgage conditions if their lender does not know they are letting their property, which could have a knock-on impact on tenants if the property was repossessed."
Evictions
There are increasing reports of tenants of this new breed of landlord being evicted because the property owners have been unable to continue to pay their mortgages. The risks of eviction appear to have increased substantially as lenders take a harder line on arrears on buy-to-let mortgages.
Lucy Morton, managing partner and head of lettings at W A Ellis, says: "Tenants are increasingly nervous about the security of landlords. We are also seeing tenants asking for assurances that the landlord will be able to cover his mortgage payments throughout their tenancy."
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related links
- Knight Frank prime central London index March 2009
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In prime areas of outer London, rentals have fallen by 20% in just one quarter.
