Times reports that rising rents will push people back into sales market

News in the Times today that rising rents will create more homebuyers is borne out by our experience of the market in Central London. Although we feel there is an element of wishful, long-term thinking at play here.

Laws of supply and demand regulate the London property market. When people opt to rent rather than buy, rental prices inevitably rise. This is currently most pronounced at the cheaper end of the market; one and two bedroom flats under £500 per week are in very short supply and rents are generally very firm.

Job losses in the City mean there are more higher value £500- £1500 per week flats and houses coming on to the market in London, with demand level, at best; even though many people are switching from buying to renting. Tenants in this position generally see money spent on renting as “wasted” and are looking for more economical and flexible accommodation.

Tenants are adopting a “wait and see” approach before entering (or re-entering) the sales market. This is noticeable in the increasing number of tenants who are renewing existing agreements on “Periodic Tenancies” or are looking for shorter term agreements with six month release clauses - A phenomenon resisted by most landlords, particularly at the higher price levels.

This affordability gap where tenants won’t or can’t pay huge amounts of money to rent has already caused an upturn in yields on smaller flats. Buy to let investors are already cashing in on demand and taking advantage of the wider choice of smaller flats for sale in Central London to expand their portfolios.

Only a pronounced upturn in city recruitment is likely to push demand for many of the middle price range properties and we’re seeing some prices fall slightly. However the lack of choice of affordable rental property is likely to persuade people back in to the sales market. Who knows, maybe at long last the British will start to see owning a home as a lifestyle choice rather than an investment that you happen to sleep in.