Tuesday, 31 March 2009

Rents Are Falling!

Any day now, the 6pm bulletin will announce: “…news just in. We’re all completely screwed. Try not to panic!”

But there is one positive story: rents are falling. Well, at least, that’s what they say, but here, on the ground, I’m afraid it’s not quite so straightforward. Letting agents would rather die (no; really - they’d choose death) than admit that rents are shrinking, which is why they are still clinging to astronomical asking prices.

There are legions of flats, and increasingly, renters are opting to be a little more choosy, especially where there are masses of empty newbuilds. Even where it's nicer - close to town, away from the nastier developments - prices are still dropping. You can find a medium spec flat (solid but nothing fancy) and some of them are approaching fair to realistic levels, because wise, more experienced landlords are requesting down to earth prices.

Elsewhere, there’s no denying the overwhelming evidence for a freefall, but everything depends on where the flat is situated. On arterial routes out of town, close to an area of relative deprivation things are harrowing. Many of these flats were built using the extremes of developer greed, with disastrous cost cutting in room size, management standards and build quality. Rents here are plummeting, but you wouldn’t want to live there at any price.

Even in well designed, higher spec flats, prices have fallen. There are stories about landlords with empty newbuilds trying to lure tenants by offering cleaners, Playstations, inclusive internet and payment holidays to those sign up for a long term stay. Beware landlords bearing gifts, however. If they seem desperate, they could turn out to be behind with mortgage payments. You might not be there for long.

My own current landlord initially consulted some Letting Agents (collective noun: a plague?) who insisted he could demand £150 over what I am paying. Fortunately, he is a decent, straightforward man (so far…) astute enough to realise that the market is contracting. He’d rather deal with tenants himself, as agencies will elevate rents and he’ll still do all the work. Clever landlords have grasped that if they ask for too high a rent, tenants in a shrinking market will quickly find somewhere cheaper and leave, causing those dreaded voids.

Remember the old days, when buy-to-let was new and exciting, when investing in property promised riches or at least financial security for landlords (and renters paid the price?) Those heady dreams of giddy profits sent prices for a rabbit hutches racing skywards. Easy mortgages have vanished and house building is in stasis. Meanwhile, rents are either moribund, falling, or actually so low that eventually, landlords will find themselves subsidising tenants to live in their property.

This is a welcome, and necessary adjustment. Rents are hitting the actual level ground on planet earth, where real human beings (i.e. actual people) live, as opposed to fantastical, imaginary ciphers created for an Inside Track seminar. But what if letting agents, landlords and developers had asked for fair prices to begin with? Would there have been so many evictions, repossessions and bank crashes?
Ah, what if.
If only…


Nick Parkin said...

Some of us have always charged fair rents. I've just had a request for a reduction in rent, & it gave me great pleasure to point out to the tenant that the rent that they have been paying for the last 2 years is 20% below the rents of comparable flats in the area. The thing is that private landlords are excluded from the Property Portals such as Globrix, Rightmove, Propertyfinder, Primelocation unless they go through a letting agent - which of course adds 10 - 15% + VAT to the rent.

We get around this by letting out through agents who charge the tenant for finding a property.

Cheaper property is out there- it's just more difficult to find.

dearieme said...

The notion that there are some abstract "fair prices" is medieval magic-thinking. Put it behind you.

RenterGirl said...

No, not fair as in adolescent 'wah it's not fair!' but appropriate, and serviceable. In Manchester, Sheffield, Birmingham etc, where there are so many empty buy-to-let flats of all kind, 'unfair' rents, out of all proportion to the actual value of the property, and mor especially earnings of the target tenants, are empty. And that's why unfair rents are falling. Things are diferent in London, and Nick you seem to have taken the sensible long term view.

Nationalist said...

Rents are also falling because mortgage costs have fallen, surely? With an IR base rate at 0.5% - the lowest ever - mortgages must be extremely affordable. Landlords have leeway.

RenterGirl said...

Nationalist, that's part of the reason, I'm sure. But the plethora of newbuilds, the dearth of tenants, the end of unrealistic expectations are also pushing rents down. Profit was not made on the weekly rental income, but on the equity. Perhaps people are also aware of that now.

the reaper said...

'With an IR base rate at 0.5% - the lowest ever - mortgages must be extremely affordable. Landlords have leeway.'

nationalist,they aren't.
some are on fixed rates
some will be unable to remortgage at old LTV levels

most recent LL's work on the basis that they'll find someone dumb enough to pay the mortgage,no matter how unrealistic that may be.

until they get repoed,rents won't drop much.

RenterGirl said...

You're both right, in a way. Where landlords can't/won't/don't drop prices, tenants don't move in, or move out asap, and owners go bankrupt. Market forces at their harshest. And when they are repossessed, the rents then hit realistic levels.

J said...

Do you think rent decreases will reach London or will the capital be immune?

I'd love to rent a one bedroom flat rather than flat share but I can't imagine the rent on a one bedroom flat ever coming down to £600 or £700 per month in London.

RenterGirl said...

I'm not sure J. I hope so, but demand is so high. Even so, wages are low/falling/non-existent, and people can only pay what they can afford. No matter how high the demand/low the supply, there a natural ceiling. Good luck, and thanks for reading!

Anonymous said...

just generally wanted to tell you your post is well needed. i went through london renting from hell for 4 years - probably moved about 7 times in total. towards the end i was so traumatised that i was starting to twitch and rock like an orphan in some kind of war torn country. recently left the UK and consider myself a very fortunate 'escapee'! Enland just makes me so cross right now.

Rsa1wtmh said...

I've just moved from London to Bangkok and the quality and size of flat you get out here is sooo much better. Apart from some food everything else is the same price as in London but having a large flat and some sun really does go a long way. Its going to be hard to come back to renting in London I can tell thee.