Tenant lettings faltering

Tenant demand has cooled in the face of rising rents, slower employment growth and a bounce in home sales, figures indicate.

The Royal Institution of Chartered Surveyors (RICS) said that in the three months to April, 16% more of its members reported a rise than a fall in tenant lettings - down from 28% in 2006.

It represented the biggest drop in rental demand for almost two years and is below the long run average of 18%, data showed.

RICS said that rental demand had faltered and house sales increased in response to a reduction of employment growth and a hike in rents. Demand fell for both flats and houses, although the slowdown was greater in the housing sector.

New landlord instructions - an indicator of buy-to-let activity - has fallen slightly, the latest Lettings Survey revealed.

In the quarter to April, 7% more chartered surveyors reported a rise in landlord instructions compared to 10% in the previous quarter. The fall in activity has been driven by a continued reduction in yields and signs that underlying house price growth is beginning to slow.

Gross yields fell for the third consecutive quarter, with the pace of decline accelerating to its fastest rate since July 2006.

Jeremy Leaf, spokesman at the Royal Institution of Chartered Surveyors, said: "Housebuyers are returning to the market to avoid borrowing costs, signalling a drop in demand for rental property. With more supply on the market due to a rush to avoid the upfront costs of HIPs, which now seems a little premature, buyers have found the market less tight than expected.

"Rising borrowing costs and a subsequent drop in yields have also contributed to a worrying time for landlords.

"Interest rate rises later in the year will have a further dampening effect, but for the underlying strength of the economy and an active housing market should ensure a soft landing for many."

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