Rental market shows fall

The typical monthly rent fell by 0.8% on a month earlier to £711 in December in England and Wales, according to the latest index from LSL Property Services, which owns chains Your Move and Reeds Rains.

But the lettings network predicted that rents will soon be on an "upward march" again as would-be buyers continue to struggle to raise a mortgage this year.

The findings came as a separate study released by the Association of Residential Letting Agents (ARLA) found that in the last three months of 2011 just over half (55%) of its members reported more tenants than properties available.

ARLA said that while this indicates continued "robust" demand, the figure is sharply down on the third quarter of 2011 when three quarters (74%) of members noted the trend.

Tim Hyatt, president of ARLA, said the drop could be due to the traditional seasonal slowdown, but added: "At the same time, it could indicate a reversal of the surge of new tenants who turned to the private rental sector when they could not afford to buy."

He added: "We are reassured by the fact that the number of new tenancies is stable, but we will be watching the market closely in the coming months to determine how significant these latest figures will prove to be."

The rental market experienced a boom last year due to demand from trapped renters who wanted to buy their own home, but could not raise the deposit or meet lenders' borrowing criteria.

The drop in rents seen in the latest LSL Property Services index continues the trend started by a 0.4% monthly fall in November, which was the first time rents had decreased overall in 10 months.

Its most recent survey also found that rents in London have fallen for the first time in a year, dropping by 0.9% to an average of £1,023.

The South East saw the biggest month-on-month drop in percentage terms, with a 1.9% fall to reach £727, while the West Midlands saw the biggest rise, with a 1% increase to an average of £562.

The East Midlands and Yorkshire and the Humber also experienced slight month-on-month rises to reach average rents of £547 and £539 respectively, while all other regions in England and Wales saw typical rents fall.

David Newnes, director of LSL Property Services, said: "With the mortgage market facing challenges from the eurozone crisis and the sluggish wider economy, credit conditions are unlikely to ease significantly over the coming year.

"As a result, the number of first-time buyers able to secure finance isn't about to rocket up, and demand for the limited supply of rental accommodation will continue to rise. It won't be long before rents resume their upward march."

Tenant finances deteriorated in December, which the index suggested showed the impact of Christmas spending.

The survey found that 10.7% of all rent was late or unpaid at the end of the month, compared with 9.3% in November.

But the seasonal increase was lower than in the same period last year, when rental arrears rose to 11.7%.

Mr Newnes said: "While there are indications that a small minority of tenants are facing increasing arrears, the overall tenant population has coped reasonably well with the impact of higher rents and soaring inflation.

"The influx of financially sound, frustrated buyers has helped prevent higher general arrears so far, but as the labour market weakens and wage growth remains lethargic, we expect a steady rise in arrears as the year progresses."

Matt Hutchinson, director of flat and house share website SpareRoom.co.uk, said it might be premature to believe the rental market has peaked.

He said: "What we're probably seeing is a temporary blip, a natural cooling-off period for the rental market.

"The fact is, the fundamentals haven't changed.

Demand is still significantly outstripping supply of new rental stock, and while December was a quieter month for the rental market, January and February are typically two of the busiest months."