Rents fall as slump pushes sellers into becoming landlords

Falling house prices, low interest rates and a collapse in mortgage lending have convinced many homeowners to rent out their properties rather than sell. At the same time, job losses in the City and the wider economy have taken their toll on demand among tenants particularly for more expensive homes.

Rents in "cold spots" such as Lambeth, Kensington & Chelsea, Merton and Wandsworth have fallen more than five per cent since New Year, according to today's report by website Gumtree.com. Large houses at the higher end of the market were hit hardest with rents for four-bedroom homes down 6.8 per cent as tenants opt for cheaper flats.

Gumtree said the average rent in the capital is now £1,338 a month - four per cent lower than in the final quarter of last year when it was £1,394.

The firm also reported an 11 per cent surge in the number of homes up for rent. It said a growing number of landlords - or "unplandlords" as it calls them - are renting out their homes because they wanted to move but could not get a good selling price.

Property expert Sarah Beeny, a presenter on TV shows such as Britain's Best Homes, said: "Big companies in the City have been cutting employees' rental allowances in the past 12 months, resulting in many now hunting for cheaper property in less desirable areas. Current unbelievably low interest rates also means people are not having to sell and can afford to move and rent out their current property to cover their mortgage instead.

"The property sales market is not going to bounce back as some imagine any time soon and whilst interest rates stay low even though the rental market is slower than it has been, I suspect we will see more and more 'unplandlords' emerge."

Only two London boroughs, Enfield and Hounslow, saw rents remain static between the final quarter of last year and the first quarter of this and no area showed an increase. Westminster was the most expensive area with the average rent at £1,555 a month while Barking & Dagenham was the cheapest at £878 a month.

The cheaper end of the housing market fared better than more expensive properties. While rents for three-bedroom houses were down 5.5 per cent, studio flats and one-bedroom homes saw an average fall of 2.3 per cent.

Ms Beeny warned that many new landlords were unprepared for the job and did not know about basic things such as contracts and inventories. "There is an influx of new landlords into the market unprepared for what comes with it," she said. "The law is more on the tenants' side so it is really important landlords are well prepared so the process runs smoothly for them."