To rent or not to rent

'Forced' landlords are causing residential rents in central London to fall but they are still higher than they were a year ago, according to a new report…

There is also evidence that the amount of new rentals coming on the market may have peaked and analysts believe that prime central London rents should plateau and possibly rise in 2009.

The report from Knight Frank says that rents fell by 1.8 per cent during the third quarter of the year. This fall outpaces the decline seen in the second quarter, when rents dropped by 0.5 per cent, but rents are now 1.7 per cent higher than a year ago.

Rents are also falling in outer London with prime property also falling by 1.8 per cent over the last quarter, the report found.

Capital values are falling more rapidly than rents, consequently yields in central London are continuing to rise, now standing at 4.2 per cent, compared to 3.9 per cent a year ago.

'Not all of the capital has been equally affected. Rents for houses in the most exclusive central areas have remained static over the past six months, a result of both scarcity and the demand from very highly paid financial specialists drafted in from overseas to manage the crisis in the City,' explained Liam Bailey, Head of Residential Research, Knight Frank.

'However, the main cause of the falls in most markets is the number of forced landlords who have opted to rent out their primary residence – either because they cannot sell at the price they deem appropriate, or are waiting for the market to turn,' he said.

'As a consequence, the quality and quantity of rental stock has noticeably increased over the past few months, increasing the choice for tenants and driving down rents. They have been joined by a number of developers who are choosing to let out their unsold properties.'

However the unprecedented level of supply partly obscures the fact that tenant demand is also at historically high levels. 'The rental market is offering an ideal place for potential buyers who are deterred by falling prices in the sales market or difficulties with obtaining mortgages. Owning a property purely for rental income rather than house growth will become far more viable,' he added.