Buy-to-let investors returned to the market as rental growth reached record levels. Tenant demand for rental property has been boosted by declining accessibility, rising uncertainty and a slowing housing market which has reduced the impetus on would-be home buyers to enter into the market, says the RICS Lettings Survey published this month.

29 percent more Chartered Surveyors reported a rise than a fall in tenant lettings, up from 15 percent in the last quarter. Deteriorating accessibility, tight supply and a slowing housing market has kept would-be home buyers in the rental sector, with many adopting a wait and see approach.

New landlord instructions (an indicator of buy-to-let activity) picked up sharply in Q2. 20 percent more Chartered Surveyors reported a rise in landlord instructions compared to 8 percent in the previous quarter – the first time that the figure has moved above the long run average (16 percent) in 15 months.

However, there was some further evidence that more heavily leveraged landlords may be feeling the pinch from higher interest rates. In the interest rate sensitive areas of London and the South East, Landlords sales rose above the survey’s average. However, at 6%, the percentage of landlords selling their properties at renewal on a national basis remains below the previous peak of 10% in Q2 2004.

Looking forward, surveyors expect rents to reach record growth rates in the coming months. In particular, surveyors expect a surge in rental growth for flats into the autumn as first time buyers watch for the impact of interest rates before taking the plunge.

RICS spokesperson Jeremy Leaf commented:

“Current economic uncertainty has created an ideal platform for buy-to-let investors to cash in on rising rental levels. Many would-be buyers have decided to wait and see how the interest rate cycle will affect the market.

“Rising rents are offering some compensation for landlords that are experiencing higher borrowing costs although buy to let investment will struggle for funding in 2008 as lenders become more discriminating, especially for ‘sub prime’ properties.”

Source: RICS