The amount of money taken by landlords as rental income for Residential property in central London is now starting to fall but has not yet fallen to last years levels according to a report released yesterday by Knight Frank.
There are also less rental properties coming on to the open market which leads analysts to predict that the number of properties for rent has reached a peak, and therefore rental yields could start to rise in 2009 as demand overtakes supply once again.
The report stated that cash rental payments dropped by 1.8% during quarter three of 2008, which outpaces the decline in rents witnessed in quarter two, when rental yields fell by 0.5%, but achievable rents are still 1.7% higher than last year.
In outer London, the value of rents has also declined in the prime property sector by 1.8% over the last quarter, the report found.
The value of property however is falling quicker than the rental payments and, as a result, yield percentages in central London are continuing to increase, now standing at 4.2%, compared to 3.9% a year ago.
Rental income for houses in the most exclusive central areas has remained fairly consistent since the beginning of the year. This is a result of a lack of this type of high end property in these locations.
The main cause of such an identifiable drop in rents received is the prevalence of 'forced landlords', people who rent out their own primary residence when they find they are unable to sell their property. This has resulted in an influx of good quality rental properties onto the market, giving tenants more choice and pushing down rents. We are also seeing plenty of property developers who are choosing to let out their unsold stock.
According to Knight Frank, this influx of residential rental property has come at a time when the number of tenants has also reached a historic high. More and more people are choosing to rent their primary residence rather than buy due to prices and the lack of availability of mortgage finance on the high street. Investing in property purely for the rental income achieved, rather than focusing on capital growth will become far more common.
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