Rent rises will boost buy to let in the UK

Soaring rents in the UK makes buy to let a good prospect for property investors as demand for rental housing rises faster than supply.

The Royal Institution of Chartered Surveyors latest residential lettings survey shows that 28% more surveyors have reported a rise in tenant lettings and praised the move as a positive sign for landlords. But the British Property Federation, the trade body for developers, is predicting it will lead to a new crisis.

Because mortgage providers are continuing to hold back, the demand for rental housing is rising faster than supply leading to an escalation in rents.

'These figures highlight another impending housing crisis – soaring rents,' said Ian Fletcher, the BPF's residential director. 'If demand continues to rise while supply does not, those who can't buy or access social housing will have nowhere to go.'

The organisation believes developers should now be encouraged to build new homes at a time when they are all slowing down because of the credit crunch. 'Large investors building new family homes specifically to let could be encouraged with minor planning and tax changes,' he added.

But for landlords the news is welcome. 'The sales market's loss is the lettings market's gain,' said RICS spokesperson James Scott-Lee. 'Some would-be sellers are retreating from selling and letting or re-letting their properties as they wait for mortgage lenders to offer buyers more favourable lending criteria.

'With rental expectations high, landlords will continue to enjoy this increasingly lucrative market. Fears that a change in capital gains tax would bring a new wave of sellers have to date not been realised,' he concluded.

John Heron, managing director of Paragon Mortgages, said: 'Rents have been rising at the fastest rate we have seen since the Buy-to-Let Index was first published in 2001. Buy-to-let provides accommodation for many people, particularly in the current environment with people choosing not to buy but rent instead.'

He believes there is a lot of opportunity for investors. 'This presents a good buying opportunity for investors, who remain upbeat about the future. A massive 90 per cent of them plan to hold on to their portfolios for the long-term – 17 years according to ARLA's latest research, and 40 per cent of them intend to invest more in the private rented sector this year.

'Buy-to-let has certain counter-cyclical characteristics which mean it will remain resilient, and indeed will outperform the market, at times of lower economic confidence and growth,' he added.