Rental market booms as house prices slide

Demand for rental properties is at record levels as people delay plans to buy their own homes because of the downturn in the housing market.

The proportion of letting agents reporting that demand is outstripping supply is now at a high of 39 per cent, according to the Association of Residential Letting Agents (Arla), with the imbalance highest in Greater London and the South-east. The report echoes the findings of recent studies which have revealed a rental boom off the back of turmoil in the home-owning market.

The mortgage lender Paragon said strong demand had pushed the average cost of renting a home in England and Wales through the £1,000 a month barrier for the first time.

"In many places this has had a positive effect as it has allowed the rental market to provide stability in housing at a time of volatility in the sales market," said Ian Potter, the head of operations at Arla.

Other reasons for the boom in demand included a sudden influx of desirable properties coming on the market, Mr Potter added. "We are seeing corrections in individual locations throughout the country. The main cause of these is the development of new blocks of two-bedroom flats coming on-stream," he said.

The strong level of demand has led to a further fall in the average length of time a property is empty between tenants, falling from 24 days to 22 during the past three months. There has also been an increase in the average length of time tenants stay in a property, rising from 16.1 months to 16.3 months.

Michelle Feuerlicht, 29, who has been renting in Islington, north London, since October said she was keen to buy her first home, but was likely to remain a tenant for the foreseeable future. "I've been looking to buy a two-bedroom flat since the end of last year," she said. "But the worry is: if I buy a flat now – will it be worth less than I paid for it in six months' time?

"I don't want to end up with negative equity and even though I've saved up the deposit needed to get a mortgage, I plan to keep renting until it becomes clearer which way house prices are going.

"Renting in London is expensive one-bedroom flats seem to be on the market from at least £250 per week plus bills, which can really add up, but at the moment waiting for even a small percentage fall in prices which could end up saving me thousands of pounds when it comes to buying my own place. Staying in rented accommodation seems to make sense at the moment."

The Arla research, based on responses from 444 letting agents, found that it was not only first time buyers planning to sit tight and ride out the current downturn in the housing market. More than three quarters of landlords said they did not plan either to buy or sell in the near future.

Despite the boom, rents fell slightly during the three months to the end of May, with average rents for houses falling by 7 per cent, while the level of income landlords can expect from flats dropped by 9 per cent.

Average rents for a house now range from £931 a month outside the South-east to £3,000 in London, while flats range from £585 outside the South-east to £2,000 in London.