London residential review, Summer 2008

According to Knight Frank’s latest Residential Review, the much publicized crisis in London’s property sales market is making way for a booming letting market as well as for professional property investment. According to this review the credit crunch is not a setback in demand of accommodation.

Buying an appropriate home has become impossible due to tightened mortgage conditions and considered unwise due to short term outlook for house prices. As a result of this, the demand in the letting market has increased by 30% on an yearly basis, (ie. in Central London the rents have grown up to 16% during 2007) and many potential buyers are now deciding to rent.

The demand for good quality family homes has become the trend and more and more tenants nowadays are on the look out for rented accommodation in the medium-term, since they do not view it as a short term or second rate option.

The supply of rented homes has also increased with many frustrated vendors now choosing to rent out due to the uncertain future of the sales market and a remarkable improvement on the quality of the stock on offer is being noted, ie. most previously owner-occupied homes have been furnished to high standards.

According to Liam Bailey, Knight Frank’s Head of Residential Research, with rising rents and the fall of property values, it is sensible to own property purely for the rental income and this could attract more professional investors into the UK rental market.

The outlook on property market remains very uncertain according to Liam Bailey, and if the overall economic situation deteriorates, this drop could be far more significant, ie. by employment increase and inflation. Also due to high rate of stamp duty in the rising market, many buyers will be lost on their own home sale in future and will also be paying high taxes.

It is important to note that there is still an undersupply in UK’s housing market and when the decreased market does come up in the next few years, the problems of affordability and scarcity will return as house builders are entirely pulling out of the development now.