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UK property market experiencing rising rental yields

In the three months to October, 15% more chartered surveyors reported rental yields rose rather than fell. This is the seventh consecutive quarter that yields have increased and reflects the imbalance between rental demand and supply which is continuing to push rents higher.

Some 19 more surveyors reported rents rose rather than fell, but the pace of growth was more moderate than earlier in the year. Respondents noted that a lack of mortgage finance is the main reason for the large numbers turning to the rental market.
However, fears over the economy are also playing a part, with renting seen as a safer option than purchasing a property in the current turbulent economic climate.

Supply of rental property to the market remains unable to keep up with tenant demand, but new landlord instructions did increase in the three month period to October, rising to a net balance of +10%. RICS said this represents the fastest pace of rising instructions since the three months to April 2009. Surveyors note that some properties, particularly family homes, are now coming to the lettings market after unsuccessful sales campaigns.

Perhaps unsurprisingly, after experiencing rising rental yields, fewer landlords are opting to sell at the end of a tenancy agreement, with the percentage planning to do so moving to 2.6%. This is further contributing to low levels of supply.

From a regional perspective, rents in London picked up at the fastest pace, while they rose more modestly across the North, the South East, the Midlands, Scotland and Wales. Meanwhile, positive tenant demand across all UK regions is supporting the overall rental outlook, said RICS. Expectations remain upbeat, with 25% more surveyors expecting rents to rise rather than fall.

‘The disappointing economic message communicated by the Chancellor in his Autumn Statement and the prospect of further job losses in some sectors and areas over those previously envisaged is likely to continue to underpin the residential lettings market in the near term,’ said RICS spokesperson James Scott-Lee.

‘Indeed, despite a measure of resistance to rising rent levels from tenants, in some parts of the country the imbalance between demand and supply for rented property suggests that for the foreseeable future landlords will have a good if not increasing return on their investments in comparison with other main stream options,’ he added.