Judith Heywood and Rebecca O'Connor
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The dream of homeownership has slipped farther from the reach of first-time buyers, who have been unable to afford a home because of the credit crunch.
They are being squeezed again, by surging rents - up by almost a third in some areas - and by yet another increase in borrowing costs.
Monthly bills for a rented home have risen by an average 11.7 per cent across Britain in the past year, according to research from Paragon, a buy-to-let mortgage lender.
Tenants in the South West have been hit hardest, paying almost 30 per cent more in rent than a year ago, with those in East Anglia, the North and Yorkshire reeling from increases of up to 25 per cent.
Banks turned the screws even tighter yesterday when they raised the cost of borrowing, increased rates and demanded bigger deposits. One lender, Woolwich, will require as much as 20 per cent of the value of the property on many of its popular mortgage deals.
The difficulty in raising such high deposits, particularly for first-time buyers, accounts for the fall in mortgage approvals. According to the British Bankers Association, approvals dropped by more than half in May to a new low of 27,986 loans. Since April last year the number of first-time buyer loans has also fallen by 35 per cent.
Mortgage approvals are a key indicator of the health of the housing market, and these latest figures suggest that house sales could halve this year, down from a peak of 1.78million in 2004 to an estimated 1.17million.
Mike Goddard, chief executive of Belvoir, the largest lettings agency, said: “The lettings market is booming and what that's doing is pushing rents up. Demand is increasing from first-time buyers, who are finding it even more difficult to get into the market.”
Katy Waite, a director of the County Homesearch Company, said: “Many of our clients are facing the prospect of being gazumped after bidding for properties to rent. Landlords have people queueing up, ready to pay full deposits on the spot and the full rental price without question.”
The Association of Residential Lettings Agents said that almost 40percent of agents had more customers than properties to house them in. Tenants were choosing to stay in their rented homes longer and properties were standing empty for shorter periods.
According to Paragon, the sharpest rise in rents was for houses, with a detached property costing 36 per cent more to rent, at £21,135 a year, than last summer. These increases are proving a rare boon for investors, who are now enjoying the highest returns on their properties, at 6.4 per cent a year, in two years. These returns - or yields - had been in decline during the housing boom, when property prices leapt up faster than rents.
Apartment rents have been kept relatively steady - up 3.3per cent on last year - by the oversupply of new flats in many cities, such as Leeds, Birmingham and Manchester.
Rising rents and bigger household bills will make it more difficult to save for a deposit. Lenders have withdrawn all 100 per cent mortgages and most 95percent deals. To get a decent rate, first-time buyers need to pay a deposit of at least 10 per cent, equal to £17,510 on a £175,093 property, which is what most first-time buyers can afford. According to National Savings & Investments, this would take almost ten years to save up.
Although buy-to-let investors are enjoying increased demand for their properties, they have not escaped the squeeze, with rates of up to 10.05 per cent on loans. The Bank of Ireland will raise rates today for landlords on its five-year fixed rate buy-to-let deal by 0.6 percentage points to 8.09 per cent. This comes after the bank's decision to reduce the maximum loan size from 85 to 75percent of a property's value.
The amount of rent landlords must receive to cover their mortgage has increased to 125 per cent of their repayments, up from a minimum of 100 per cent on last year.
Melanie Bien, of Savills Private Finance, the independent mortgage broker, said: “Landlords are trying to ease the pain of rising buy-to-let mortgage costs by increasing rents. They can do this because rental demand is greater than supply and tenants have to pay decent rents to get the best properties. Those first-time buyers who are being forced to rent for longer because they cannot afford to get on the property ladder are also paying more rent in the meantime, making it harder for them to save up a deposit to purchase a home of their own.”
Howard Archer, a chief economist for Global Insight, said that the housing market was “being throttled by stretched affordability and tight lending conditions”.
George Osborne, the Shadow Chancellor, said: “These figures show that homeownership is being pushed beyond the reach of millions under Gordon Brown. This is yet another blow to people wanting to get a foot on the housing ladder.”
Woolwich, the lending arm of Barclays, increased the amount needed for a deposit on some of its most popular deals from 10 to 20 per cent. On a £200,000 property, a borrower would need to pay a deposit of £40,000 for a five-year fixed rate mortgage. Woolwich also raised
rates by up to 0.4 points on some tracker deals while Bristol & West increased some of its rates by 0.7 percentage points and withdrew 95 per cent loans.
An average two-year fixed-rate mortgage has risen above 7 per cent, for the first-time in 11 years, according to Moneyfacts.co.uk, the price comparison service. Only six months ago homeowners could obtain a rate of 5.4 per cent on a two-year fixed rate mortgage. On a £150,000 home loan, the increase in two-year rates since the beginning of this year has added almost £1,300 to the total cost of taking out one of the deals.
Experts said that higher mortgage costs were forcing more cash-strapped borrowers into voluntary debt management plans, with applications for individual voluntary arrangements rising by 34 per cent since the start of the year.
Market observers said that rents could not continue to rise at such rates. Simon Rubinsohn, an economist at the Royal Institute of Chartered Surveyors, said: “Rents have been moving along swiftly but there are some signs that the massive increases have already taken place and the market has begun to lose some of its upward momentum. There may be some resistance to higher rents given that household budgets are under such pressure.”
Lucian Cook, a director of research at Savills, said: “Tenants are ultimately more flexible and are not tied to a particular house. They are more footloose.” Savills predicts that rents will be 4 per cent higher than 2007 prices by the end of this year.
Hurford Salvi Carr, an agent in Central London and Docklands, said that rents had been suppressed by a flood of homes that owners had been unable to sell. Hamptons International reported that the supply of homes for rent had jumped 40 per cent since the onset of the credit crunch, and the number of potential tenants had risen 9 per cent.
The latest housing market survey from RICS, released this month, showed that transactions are at their lowest level since 1978, because sellers are unable to offload their homes amid a collapse in housing market confidence and predictions of further falls ahead. Revenue & Customs reported this week that transactions had fallen about 40 per cent in a year to 100,000 a month.
The increase in rents has helped longstanding buy-to-let investors, with properties in which they have large amounts of equity. Many have been able to strike advantageous deals with lenders, it has been reported.
John Heron, managing director of Paragon, said: “Investors remain better placed to buy property than most owner occupiers or first-time buyers.”
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In the South West apartment rents were already high as they were, and they are still climbing. Where else in the country does a person have to pay £460 for a 1-bedroom apartment w/o parking, let alone garden? All of this because WSM thinks rent wise it's Manhattan, but it looks more like the Bronx.
Karen, Weston-super-Mare, Somerset
Rubbish..In Poole rents are falling - im moving to a flat thats 75 amonth cheaper and has better facilities - oversupply here.
alice, Poole, uk
Theres only one thing worse than an Estate Agent and thats a Letting Agent.
Rents are stable and good deals can be done with good Landlords, miss out the dross between The Letting Agent !
DW - Bristol
David, Bristol, UK
as a landlord in brighton until mid 2007,demand for rentals declined for my 7 flats in 2006 as amateur btl buyers came into market- they will lose out now, and three years time is good to buy again. rents are what people can pay, mortgages are what they can borrow( or bs can afford to lend)
jim scannell, lancing, england
Actually, this is more property hype from the same spin machine that inflated the bubble. Central London is 25-28% buy-to-let, its target market is the city, and just who is getting laid-off? Prime central London is in for a shock when occupancy falls and rents with it. As for the rest of the UK?
Colm MacKernan, London,
Stop being greedy. You only need one home. Didn't your mother teach you how to share? Slim down a bit and let others fit on the ladder.
Claire, Oxon,
Just renewed my lease on a flat in London, rent stayed the same and I had an improvement in fixtures and fittings...
When my deal was up for renewal I simply viewd three flats, all empty, and made an offer to the landlord that was promptly accepted...
J, London,
The Association of Residential Letting Agents (ARLA), an industry body with a vested interest in the buy-to-let industry, produces what are seen as the most accurate statistics on private sector rental inflation. What do their figures show? Average rents falling 9% over the past year.
RichB, Cookham Dean, Berks
Risible: 1) Higher rents cannot compensate landlords for imploding capital values 2) Contrast current mortgage rates with rental yield post letting fees etc post tax 3) Evidence on rents provided by vested interest Paragon flatly contradicts ARLA 4) Rents will deteriorate as economy enters recession
stephen, london, uk
Paying interest to a bank is dead money.
Also, paying an inflated price for a house and watching your equity evaporate is also dead money.
David, Bradford, UK
This article dosen't in any way reflect reality on the ground. Rents are static in Edinburgh and have not seen real growth in 5 years. Paragon itself almost went bankrupt recently so is this just a desperate attempt to drum up investor business? It must be, because this article just makes no sense.
MB, Edinburgh,
Before the Housing Act 1989 Britain had a regulated tenancy market with strict rent controls and secure tenancies. The result was that rented properties in the private sector were poorly maintained low quality housing. You cannot have high quality private rented housing without investment.
Danny, Bournemouth,
"Buy-to-let mortgage lender says there's never been a better time for buy-to-let landlords" - we're all shocked! :-)
"The Association of Residential Lettings Agents said that almost 40% of agents had more customers than properties" i.e. "Majority have more properties than tenants. Renters market."
Tim, London, UK
BLTs are far more tolerable than BTLs.
David, London,
We have lived in the same semi for almost 4 years with no rent increases. In view of this, I must treat this article with scepticism.
The Isle of Wight is in a similar situation to the West Country.
Alfred, Ryde, Isle of Wight
Para-gone. 2006 peak value 7500p. Today 77p. Talking about imaginary rent increases won't save it.
Matthew Brook, DORCHESTER, United Kingdom
Here's the thing, everything is going up in price so landlords will have more people defaulting on their rents. A savvy landlord will keep their rents competitive to ensure payment each and every month.
Greedy ones will come unstuck. Put your rents up 10% and be prepared for trouble.
John, London,
Buy To Let mortgage merchants Paragon are saying the anticipated rent that "investors" expect to recieve on a property has increased hugely. Buy To Let mortgages now require rent to cover 130% of the monthly mortgage, so it's no shock that "rents" are soaring, even though real rents are falling
Jay, Brighton,
Keep it simple.
IF rents are going up it's anachronism. If prices go down so should rents. The very reason that drives house prices down -the hability to pay - will drive rents down, sooner or later.
It's only logical.
A catch-up will evetually come.
Rui, Lisbon, Portugal
Paragon sells buy-to-let. The market collapses, so they commission a survey that shows the market really isn't in bad shape. This is unbiased information? Just print Paragon's press release! My rent has not changed for 2 years; there are at least a dozen empty rentals in my small town.
Carol, Derbyshire,
this article made me chuckle. how, if rents are going thru the roof and people like belvoir having more prospective tenants than properties to let, have i just negotiated a 15% decrease in my rent?
why are 2 of the houses on my row (of 4, one managed by belvoir) empty for nigh on 8 months now?
Le Tundoir, Liverpool, England!
So many people here think they are experts. Nonsense, rubbish, rents are not rising! From my own experience they are rising. The house I rent in Bristol has gone up nearly 30% in rental charges this year alone - and all the houses in the area have gone up since I was looking a year ago.
Philip, Bristol, England
I am in agreement broadly with most people who have commented. However, I have found that the rents in my area have actually gone down in the past 10 years ,not up?
Even buying outright, with all the expenses, you are still not going to make 7%, which you can get in a BS now without doing anything.
J Hughes, Newport, South Wales
I agree with VK. In Clevedon rental properties are on offer with 'new, reduced rent.' As for the claimed returns on rental properties, frankly I don't believe them. People talking up rental yields always omit interest payments, agents fees, insurance, maintenance and safety checks. 'Nuff said!
David Clark, Clevedon, England
Gentlefolk
Maybe you need to know from a landlord... rents aren't going up as quickly as 30% - in London at least. But they ARE going up. For all you doomsayers who live more in hope than experience, go find somewhere to live that's cheaper, just don't complain when the plumbing doesn't get fixed
Hany Mustapha, Kingston upon Thames, UK
Rubbish!!
Rents are falling almost in line with the house prices. If the people are missing out on the payments of house mortgage what makes it logical that tenants won't have difficulty in paying the rent!!!! The assumption here is a misconception that if the house prices fall, the rent goes up.
V K, London,
Rents cannot go banana's like house prices as they are based on ability to pay, not the ability to borrow. We will have to wait for BTL landlords to go bust and be repossessed, as many overpaid at the height of the boom and are overgeared to sustain affordable rents.
Paul, London, London
Buy to let specialist lender says now is a good time to be in BTL? Shocker!
Would this be the same Paragon that has seen a 53% fall in business and 70% fall in share price recently?
When ever I feel afraid, I whistle a happy tune so no one will know, i'm afraid...
Mike, Tauranga, New Zealand
It's a simple cycle, people are buying or renting, buying demand pushes up values and renting pushes up rents regardless of what you believe or what your mate told you the pub. Solution move in parents, do me a favour. Despite micro pockets of over supply, rents are only going one way. UP
mark connelly, surbiton, england
I live in the South West and my rent is only 15% more today than it was five years ago. 30% in just one year ... I don't think so! In the meantime, my savings have been accumulating good interest and will enable me to put down a decent deposit on a house when I decide to buy. Not bad news for me!
Andy, Bath,
I think many people will be stuck with mom and dad, I know I am we bought a large 3 storie house to gether and i have the top floor.
Thou they where ment to be moving to austria the credit crounch has left them with out the means to make up the diffrence in the foring mortgae, stuck with them I.
MR W Jones, Liverpool, England
Rents rising says Buy-To-Let mortgage provider.
Now there's a thing.
MD, Milton Keynes,
Give me a one way ticket out and I am gone I can not even get on my local council let alone rent private I have 5 people in a 2 bedroom house my daughter can not afford to move out and her boyfriend had to move in
So buying a house is impossible
Sam Taylor, Stanford Le Hope, England
Anyone else notice that Estate agents are using the same language to talk up rental prices that they used to talk up house prices?
Could this be a desperate attempt to prop up a market that is SERIOUSLY in trouble?
Average yields are 6.4%...mortgage rates are 7%-8%.....
Great investment!
Jon, Reading, UK
What a horribly unclear, inconcise and ambiguous mish-mash of unbalanced quotes and 'statistics'. As (Ian, Poole) points out, first time buyers are highly unlikey to rent a detached home. Apartment rents have risen by 3.3% which aligns with (Chris, Manchester)'s comment.
Charles, London, UK
Oh for gawd's sake. I'm a 'priced out' first-time buyer and I'm a renter who's currently looking for a new place and this is all untrue. I'm deliriously happy that prices are falling, all of us are. And rents are not going up! In N.London, they're the same as they were last year - this is nonsense!
Sarah Abrahams, London,
Why base an article on "evidence" from lenders/est.agents?
How about using official stats from the ONS?
If you do, you will find the truth about rental inflation is that it is rising in line with inflation. Unlike mortgages, rent is capped at peoples ability to pay, not the landlords costs
Nick, London, UK
"... the sharpest rise in rents was for houses, with a detached property costing 36 per cent more to rent"
"Savills predicts that rents will be 4 per cent higher than 2007 prices by the end of this year."
This article is completely self-contradictory! Can't the 'The Times' afford editors?!
Ted, London, UK
My parents have 25 rental properties (bought before the boom). It is true that the houses are more popular but that is because the tenants are house share students or professionals. However talk of 25% rent increases in Yorkshire are laughable.
More like 2.5%!
Stuart, Sheffield, UK
I would generally agree with the article. I am seeing better yields from my BTL properties because they are in good areas and i too am looking for opportunities to add to my portfolio should prices fall.
phil, london,
As others have said, rent control and security of tenure are desperately needed in the UK. Ironic that this is an area where the EU should stick its nose in but hasn't yet. Political pressure will force it onto the agenda eventually - the last nail in the coffin for most landlords?
Clint, Brighton, UK
This is certainly not the case round here I'm afraid. Thank's to the late coming BTLers there are plenty of luxury and executive flats to choose from (no 'normal' flats though, only lux and exec!?) and this is depressing the rest of the market. Rents are below 2005 levels.
Robert, Hull, UK
What a surprise, to discover that Europe has sensible rent-controls and Britain doesn't. Time for Brussels, yet again, to make us do the right thing, as we seem constitutionally unable ever to do it without being forced to.
eric campbell, harrogate , uk
Journalist laps up Press Release from Zombie BTL lender Paragon.
Better story might be to question the basis of these Paragon figures.....
John McMullan, Reigate, Surrey
Heywood and O'Conner. Are they estate agents by any chance ? Like house prices, rents will soon tumble.
Vini, London, UK.
Paragons "research" shows that rents have risen most in detached houses (by 36%) - how many first time buyers rent detached houses?
As long as the rent is less than interest payments on the same property, renters are quids in for as long as they are renting. Renting is absolutely not dead money.
Ian, Poole,
I think they [the BTL lender] mean rents are falling but not as fast as house prices!
Ashley, Kent,
What a depressing country to live in. I think a lot of people will be moving back home to live with their parents, maybe friends will group together. Either way there will not be the money out there to pay for these massive rents.
Chris, C. Norton,
I have 6 BTL flats and rents are going crazy. I offered one flat last week and had 8 prospective tenants on the first day! I have been able to increase rents by 20% this year so far and it looks like it could be at least another 10%-20% by the year end. For me this is the upside of the credit crunch
Chris, Croydon,
And absolutely no protection from the government, scandalous!
Pete, St Albans, England
Renters just hold for a good deal, move in with friends or parents.
There is over supply and they are desperately trying to cover rising repayment costs.
Think about it rising rents in a declining house market? Only as a % not in real terms.
Contracts only allow 3% ish rises anyway.
chris, Manchester,
This report could have been more balanced. A lot of the comments are from organisations that benefit from encouraging landlords to use their services. I have sold all my BTLs, friends that have hung on are seeing falling rent and capital values., so I definitely made the right move.
Mike Livingstone, Reigate, UK
The possiblity of more couples having to live with Mum and Dad become more real each day. This will lead to a change in our culture.
I expect to see more property extensions and loft conversions
V Cooper, Yeovil, UK
The UK urgently need legislation regarding rents.In France it can only go up once a year and only with inflation.Without legislation,the economy is at serious risk due to greedy landlords.
stephen hulton, eure, france
Britain needs the same laws a Spain where rents for long term lets are, by law, only allowed to rise at a published inflation rate amount each year. Those who bought to let wanted only short holiday lets, but there are so many empty homes that they are now desperate for any income.
B J Deller, Marbella, Spain
Still, inflation is only 3.3%. Honest Guv.
Ian, Tokyo, Japan
Nonsense - rents are actually falling in many places in the UK because of excess rental supply. The myth of rising rents is replacing the myth of rising prices as estate agents try to persuade us to keep buying! Remember rents are a function of wages - which are eroding fast with inflation.
Claire, London,
Might as well face up to the real, underlying problem behind all this - Britain is just a ridiculously and extortionately expensive country.
Elaine, Oxted,