Oversupply hurts buy-to-let investors

Buy-to-let investors in London are reeling the most from a sharp fall in rental income owing to a flood of properties put up to let by unsuccessful sellers.



So-called 'accidental' landlords – people who reluctantly rent their house in the absence of a sale – may account for more than half the landlords on Gumtree.



Speaking this week, the website reportedly said the majority of rental adverts on its site were placed by people who only begun letting their property in the last two years.



Such would-be sellers are effectively depressing rental incomes by giving tenants an unprecedented choice of property and a strong bargaining position as a result.



In fact, the Royal Institute of Chartered Surveyors said the fall in average rental prices in the final quarter of last year was the sharpest since its records began in 1998.



The decrease was most marked in London and the South West, and the balance of surveyors expecting further rent falls was, similarly, the most depressed for 11 years.



Areas tracked by Gumtree with a high stock of buy-to-let properties where investors felt the pinch included Brighton, Oxford, Nottingham, Leicester, and Manchester.



But it is landlords in the capital who are worst off, albeit by varying degrees: the site said their rents fell 3.6%; while Findaproperty.com has reportedly said the figure was more like 7%.



More positively for investors, demand for rental property is growing at double the average rate, RICS found, mainly due to first-time buyers not getting a mortgage.



In some areas, agents believe that demand will be buoyed thanks to withdrawals of rented property from 'accidental' landlords disappointed by their dwindling return.



Surveyors are, however, still reporting that gross yields are rising although the net balance in the survey of just 10 is the lowest since the three months to January 2008.



The institute said this implies good news for investors as it indicates that rental levels are not yet falling quite as fast as house prices, which are at historic lows.



"The rental market will continue to boom – provided unemployment levels do not increase significantly," said RICS spokesman Jeremy Leaf.



"The downward pressure on rents will increase in the coming months where supply matches demand but with house prices still falling, yields will continue to increase for many investors."