Rents falling faster than house prices as sellers turn landlord

Three- and four-bedroom homes - until recently seen as the safest bet in the market - have been hit particularly hard because of the glut of properties available.

Rents are down 15 to 20 per cent in "cold-spots" such as Kensington and Chelsea as thousands of would-be sellers become "forced landlords" because they cannot find buyers.

At the same time corporate demand for property from the City has dried up with the unfolding financial crisis, beginning with Lehman Brothers' shock collapse on 15 September.

Houses that would have fetched £1,000 a week are now only making £750 to £800, according to agents.

The survey from central and west London agency Douglas & Gordon shows rents are down by 10.6 per cent on average since September, compared with 8.9 per cent for sales values.

Virginia Skillbeck, lettings director at Douglas & Gordon, said: "As we have seen over the last few months, more people are choosing to rent because they feel now is not the right time to sell. This is creating an over-supply which gives tenants more choice and drives prices down.

"In addition, the financial crisis has meant fewer international businesses are relocating staff to London. This has reduced the demand for rented family homes, especially in the most popular areas of Kensington and Chelsea."

The agency's director Michael Hodgson added: "The City has been one of the main drivers of rentals in London, but given the mass redundancies and cutbacks, there is now less demand."

Last month alone, Douglas & Gordon saw a 22 per cent increase in the number of homes offered to let. At the start of this month, the chain's offices across 10 London areas had 385 properties to rent on their books compared with 200 at the same time last year.

The slump has been far less acute in the starter-home sector, with rents for one-bedroom flats falling by only five to six per cent.

Emilie Dawes, lettings director at Marsh & Parsons, said: "The drop in rents has been remarkably fast in the centre and in west London. Sales prices have been falling more gradually over a longer period. As always prime locations are not hit so badly. Anything that is further away from the Tube station, or on the top floor of a walk-up, or on a lower ground floor, is seeing the biggest falls." However, she said there had been a "glimmer of hope" in the past weeks with a spike in registrations.

"The worst of the shockwaves are over and people are starting to realise they have to move for very practical reasons."