Frustrated sellers and cautious buyers boost home rent market

The slump in the housing market is forcing frustrated homeowners to put their properties up for rent rather than sell them at a massive discount.

Research from the Royal Institution of Chartered Surveyors (Rics) reveals that 43 per cent more of its members had seen a rise in sellers turning into landlords in the last three months compared to those that have seen a fall.

That is the biggest increase in more than a decade.

Many families are reluctant to accept a cut-price offer for their properties, so they are choosing to rent them out instead.

Average rental income is about 6 per cent of the value of the home, but is expected to rise to up to 8 per cent as the housing market slows. With the average High Street bank savings account paying 3 per cent, renting is looking increasingly attractive.

David Stubbs, senior economist at Rics, said: 'There is a flood of properties coming onto the rental market as people find it harder to sell their homes.

'We think there won't be a recovery in the housing market until the second half of next year, so it's a long wait if you're looking to sell your home.'

Evidence from Rics shows that those opting to rent their homes out are moving in with friends and family instead - or are selling an investment property or second home which they don't permanently live in.

And 37 per cent more chartered surveyors had seen a rise in tenant lettings, showing there is healthy demand among tenants. The rise is the biggest since Rics began its survey in 1998.

A strong economy leading to increased job certainty and larger disposable incomes has created a new wave of people being able to afford to move out of their family homes and rent.

But with the credit crunch increasing uncertainty there could be pressure on landlords through over-supply combined with lower demand.

However, there is a particularly strong demand among people looking to rent family homes. This is because many would-be buyers are being barred from mortgages as lenders tighten their borrowing criteria. Family homes tend to be more expensive than flats so need larger mortgages.

Strong rental yields are also discouraging existing landlords from selling their properties, with just 2pc selling choosing to do so - the lowest level since 2003.

Many families that have already sold their home are holding fire on buying, creating a bottleneck in the housing market. Combined with Alistair Darling's hints that a stamp duty holiday might be on the cards, the market is grinding to a halt because of all the uncertainty.

Andrew Cummings, a chartered surveyor from Chancellors, said: 'Many households have sold their family homes and moved into rental accommodation for six to 12 months in order to assess the market before re-buying.'