The UK housing slump has been something of a godsend for BTL landlords…

RICS’ new Lettings Survey has revealed that new instructions to let property increased significantly in the first quarter 2008, with owners experiencing difficulty selling their properties turning to the rental market to take advantage of rising yields.

The net balance of Chartered Surveyors reporting a rise in new landlord instructions (an indicator of supply) increased to 29 percent compared to -2 percent in the previous quarter.

A significant drop in demand in the housing market has pushed sellers back into the rental market. Many are taking advantage of rising rental yields while they wait for the effect of the credit crunch to abate.

Reaping the benefits

The net balance of surveyors reporting a rise in gross yields is at the highest level in the survey’s history. Landlords are reaping the benefits of a collapse in demand in the housing market. 23 percent more Chartered Surveyors reported a rise in Gross yields up from 5 percent.

28 percent more Chartered Surveyors reported a rise than a fall in tenant lettings, up from 17 percent in the last quarter. Significantly, demand for both family homes and flats increased as many would-be buyers found themselves unable to step onto the property ladder.

“Rising yields may have stopped the recent retreat of landlords from the market. The percentage of landlords selling their properties when tenant leases expire fell from 4.6% to 4.2%.

Surveyors report that rents are still rising and rental expectations remain at more than double the survey’s long run average. Key areas enjoying rental growth are the South East and South West while London is the weakest area for rental growth.

Increasingly lucrative market

RICS spokesperson James Scott-Lee commented: “The sales market’s loss is the lettings market’s gain. Some would-be sellers are retreating from selling and letting or re-letting their properties as they wait for mortgage lenders to offer buyers more favourable lending criteria.

“While transaction numbers in the sales market are weak, many are taking advantage of rising rents and yields in the private lettings sector.

“With rental expectations high, landlords will continue to enjoy this increasingly lucrative market. Fears that a change in capital gains tax would bring a new wave of sellers have to date not been realised.”