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9:55 AM, 3rd July 2019About 2 weeks ago 69
UK split into “London” and “the rest” rent divide
Make Text Bigger The great rental divide is splitting the UK as tenants in London pay double the amount for a comparable property elsewhere.
New research shows two distinct rental markets – the capital and the rest. According to property analysts Hometrack.
The firm says rents increased at a slower pace last year for every region outside London than in 2010, while London rents soared by 9.6%.
The drivers are demand for homes from the size of the city, corporate rents and the high cost of buying a home.
In other towns and cities, the demand is mainly from renters who cannot afford to buy a home of their own.
Hometrack forecasts 2012 rents will rise – but by a subdued 2-3%.
The report identifies a clear divide in the market where the ‘bottom of the pile’ is around 25% of renters claiming housing benefit, then a core market of tenants who cannot afford to buy or who do not want to be tied by property ownership, then a top end of corporate lets.
The findings show that 22% of London lets are for rent of more than £2,000 a month for a two bed home, while outside the capital, only 4% of lettings are for more than £1,000 a month.
The core London market is 37% of renters paying £1,000 to £1,500 a month, while outside the capital the core market pays £500 to £750 per month and comprises 50% of all buy to let homes.
“Local market dynamics dictate the sustainable loan-to-value (LTV) that an investor can withstand for a given level of rent. Assuming a 5.5% interest rate for a buy-to-let loan and rents equating to 125% of the interest payments rates on the mortgage, the maximum sustainable LTV in high capital value areas is less than 75%,” said the report.
In London, the maximum LTV stands at 55.4%, in Edinburgh 66.8% and Oxford 67.6%. In other areas of the country, the maximum sustainable LTV is much lower – 91.5% in Birmingham, 88.4% in Manchester and 87% in Southampton.
Richard Donnell, research director at Hometrack, said, “The rise in private rents has been driven by growing tenant demand and a shortage of supply. With no major improvements in mortgage availability likely soon, rental demand is set to remain strong.
“There is a limit to how high rents can go as affordability constraints continue to squeeze household budgets.”
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