In contrast to the prime markets the mainstream rental markets have continued to show rental growth, given an ongoing mismatch between supply and demand.

The difficulty in raising mortgage deposits in a debt-constrained environment continues to drive rental demand.

The issues for first time buyers are well chronicled, with average deposits equating to 82% of income as an average across the UK and 121% in London during the first quarter of this year.

However, so called ‘second-steppers’ may also need to seek sanctuary in the rental market, as the typical home mover would need to have been in the housing market for nine and a half years to fund a deposit on their next purchase out of house price growth.

This said, there is evidence that rental affordability is becoming an issue in some markets, given recent rental growth and the pressure on household incomes given the weak economic recovery. Rightmove reported that 30% of tenants in the private rented sector spend more than half of their take home pay on rent, a figure that rises to 36% in the South East. Here, as well as in London, the average rent as a percentage of take home pay is up at 40%.

Furthermore, despite the ongoing constraints on buy-to-let mortgage finance, the RICS rental survey indicates that more rental stock is finding its way on to the rental market, as cash rich investors focus their attention on bricks and mortar.

That indicates a narrowing in the mismatch between supply and demand, that according to the RICS has reduced some of the upward pressure on rents.

This said, our work on Rental Britain suggests that to match rental demand, some £200billion will need to be invested in the private rented sector over the next five years, as the amount paid to private sector landlords increases from £48billion per annum to £70billion per annum.

Taken from
Spotlight: Prime Rental Markets Q2 2012