Rents in London expected to rise in 2012

With rents rising across much of the capital, property investment conditions for landlords in London have arguably never looked so good.

According to the latest HomeLet Rental Index, the average price of a home in London is edging ever closer to £1,200 per month.

John Boyle, managing director of HomeLet, said: "The soaring cost of renting a home in the capital, compared to the rest of the UK, reflects how demand for rental properties is increasing due to people’s continuing struggle to get onto the property ladder.

"This demand offers a fantastic opportunity for landlords and property investors who could offer a much needed supply of rental properties to the industry."

But with the London 2012 Olympics fast approaching, rents across the capital are expected to rise further in the coming months, as demand for property to rent in London will almost certainly soar, particularly in prime locations.

Many central London estate agents report that they are coming under increasing pressure from landlords to significantly increase rental prices in the run-up to the Olympics, which takes place in the summer.

Estate agents Foxtons is advertising Olympic lets at record-breaking prices. For instance, the company is marketing a penthouse in Knightsbridge at an asking price of £100,000 a week as an Olympics let.

A company statement on its website said: 'With millions of visitors expected to London during the Olympic period, short term rental accommodation and holiday lettings are expected to be in strong demand.’

'To meet this demand, London will have approximately 100,000 hotel rooms as well as university and college halls of residences and other student accommodation, but the majority of visitors to the Games may opt for private, short term rentals.’

With rental prices rising across London, there is currently a limited volume of homes available for sale, as more landlords hold on to their property assets, while generally looking to add to their portfolios.

This is particularly the case in central London, where demand for rental accommodation in some of the most sought after areas, such as Mayfair, is sky-high, according to various Mayfair estate agents.

Marylebone, an affluent area in central London, is another area attracting a lot of attention from tenants, driving greater demand for flats and houses to rent in Marylebone.

Marylebone-based estate agent Sandfords report that there is no shortage of people wanting to buy homes in Marylebone, where rents can reach well in excess of £1,000 per week.

Andrew Ellinas, director of Sandfords, commented: "Property prices remain stable and vendors who seriously want to sell are doing so very quickly if the price is realistic, but few property owners want to sell because central London property is one of those rare classes of wealth that is retaining its value in a world where inflation is creeping up and stock market yields are volatile."

Aside from rising rents, market conditions are favourable for many buy-to-let landlords because of low mortgage borrowing rates.

The Halifax says that mortgage payments for a new borrower in the second half of 2011 were at their lowest as a proportion of disposable earnings for 14 years, due mainly to cheaper property mortgage borrowing rates, and this looks set to continue.

Trevor Abrahmsohn of high-end estate agents Glentree Estates believes that the market in central London will continue to be underpinned by low interest rates and long-term mortgage borrowing levels.

He said: "Interest rates and long term mortgage rates are almost guaranteed to be either static or very low in 2012 which will help underpin the market."

High demand for rental accommodation in North West London

Is there another rental boom brewing in London? Historically in the capital, rents demonstrate a distinct spatial pattern over time, rising initially in a cyclical upswing in prime central London, then wider London, starting with the outskirts of central London, before spreading out across the rest of the country. This is known as the ripple effect.

A glance at the market in London suggests that a mini boom is occurring. The latest HomeLet Rental Index reveals that average rents in London have increased by 13 per cent over the past year, led by growth in prime central London and its outskirts, most notably in St John's Wood and Primrose Hill.

A shortage of flats to rent in Primrose Hill in relation to demand has pushed property prices in the area significantly higher over the past year.

Primrose Hill, located on the north side of Regent's Park in North West London, is home to one of the most famous parks in Britain. The top of the hill in Primrose Hill offers a clear view of central London to the south east. It is one of the most exclusive and expensive residential areas in London.

"There is always strong demand for property within easy reach of London's parks," said Spencer Botchin, director at leading London-based estate agents Sandfords.

Nearby St John's Wood, located a short distance from London's West End, is another area proving extremely popular with tenants.

Strong demand for flats to rent in St John's Wood as well as houses to rent in St John's Wood has caused local rental values to soar in recent months, with prices expected to increase further over the next few months.

Adam Feather of Robert Anthony estate agents said: "St John's Wood is without doubt one of the most desirable places to live in London. Top bids are often required to secure the best homes to rent in the area, due to a real shortage of homes, which should force rental prices higher in the coming months."

The prospect of higher rental values is an attractive one for existing landlords.

Despite the fact that rents in London have soared in the past 12 months, thanks mainly to rising demand from young people who in the past would have been first-time buyers, rents are expected to increase even more in 2012.

Jones Lang LaSalle, a property consultancy, says typical UK rents will increase by another five per cent on average in 2012, led by growth in London.

London will see the biggest lettings boom. Jones Lang LaSalle projects that the capital's rents will rise by another seven per cent in 2012.

Jon Neale, research director at Jones Lang LaSalle, told the press: "London's employment market remains intense and there's still strong population movement into the capital. But the stock of rented property has hardly increased over the past few years.

Mr. Neale predicts that there will be 150,000 more London households renting than before the financial crisis. He also expects there to be more private tenants in London than people with mortgages by 2015, with areas such as Primrose Hill and St John's Wood expected to continue to command the greatest demand amongst tenants.

London property management firms are becoming increasingly important

With rents rising across London, the idea of becoming a landlord or adding to an existing property portfolio is an attractive one for many investors.

With many would-be purchasers unable to afford to buy a property, demand for rental accommodation is rising rapidly, pushing rents higher in the process.

Average rents in London have increased to over £1,170 per month, led by growth in prime areas such as Mayfair, Chelsea and Marylebone, according to the latest HomeLet Rental Index.

The increase in rental prices in London means that costs are now 13 per cent higher than last year which is in stark contrast to rents in other UK regions which are only 1.6 per cent higher, on average, compared to the same time in 2010.

John Boyle, Managing Director of HomeLet, said: "The soaring cost of renting a home in the capital, compared to the rest of the UK, reflects how demand for rental properties is increasing due to people’s continuing struggle to get onto the property ladder.

"This demand offers a fantastic opportunity for landlords and property investors who could offer a much needed supply of rental properties to the industry."

A hike in activity amongst property investors looking to cash in on higher rental prices in the heart of the capital has pushed property prices in prime central London up by over 13 per cent year-on-year, according to the Knight Frank Prime Central London Sales Index (PCL).

The PCL index shows that average property prices in central London are now 40 per cent above their post-credit-crunch low of March 2009 and six per cent above their previous peak of March 2008.

Sales volumes are running at 17% above a year ago, driven partly by greater property investor activity, suggesting that prices in prime central London could increase further in the coming months.

But with higher rental prices comes greater expectations as far as tenants are concerned, as they seek a more professional letting experience.

This means that more landlords in prime central London are now relying on professional London property management firms. A good property management service is designed to give landlords peace of mind and relieve them of the commitment of being a full-time landlord.

Professionally managed flats to rent in Marylebone, for example, are increasingly in demand from both private and corporate tenants.

The same could be said as far as houses to rent in Marylebone are concerned, as more private tenants expect a 24/7 service when they rent a property, which can prove difficult for some landlords.

"For the vast majority of reputable landlords, rents reflect the cost of providing accommodation," said Richard Lambert, Chief Executive Officer at the National Landlords Association. "Rising rents in the private sector do not automatically mean bigger profits. Managing and maintaining property is becoming increasingly expensive, which means yields are not increasing at anything like the same rate."

Using a professional property management firm is particularly important for many of the overseas buyers who are investing in Marylebone.

Andrew Ellinas of Sandfords commented: "Marylebone, with its wealth of elegant properties and desirable High Street, has been attracting affluent buyers for a number of years. Demand for properties priced between £1.5 and £4million is intense, resulting in properties selling within an average of just seven days in Marylebone."

Flats to rent in Marylebone Village and houses to rent in Marylebone Village are also proving popular for those looking to secure a home in and around Marylebone, particularly families seeking to rent a home close to a wide selection of top quality schools.