Blackwood letting specialists Martin & Co believe 2011 could turn out to be a fascinating year for the residential rental market.  Neil Williams, Martin & Co Blackwood Director discusses the latest annual house price forecast undertaken by property consultancy Savills.  Basically a ‘lost generation’ of first-time buyers will force down prices of starter homes, but push up rental growth for residential landlords reflecting ‘structural change’.

Neil comments ‘Martin & Co Blackwood Lettings have seen increased demand throughout 2010 for quality rental property and we expect this to continue in 2011.  Blackwood has generally seen a decrease in rental values over the past eighteen months due to the sheer volume of new build buy to let  property entering  the market, this has slowed and we expect the increased rental demand to place big upward pressure on rental levels.  First-time buyers simply are unable to amass deposits, and so investors will be the only buyers.’

Savills believe that prices will languish until a combination of relatively low prices and rising rents boosts yields to a level that investors find irresistible.

Savills also predicts a ‘second slip’, rather than double dip’ for UK house prices, with the mainstream market falling by 3 per cent in 2011, before returning to modest growth 2012. The five-year UK forecast is a rise of 12 per cent.

The number of cases of fraud suffered by buy to let landlords at the hands of rogue letting agents, have risen to an all-time high according to a feature compiled by the Investors Chronicle. Neil adds ‘this is why it is salient to use a professional letting agent such as Martin & Co who are members of a professional body such as government backed Property Ombudsman for letting agents and the Deposit Protection Service.’

Neil continues ‘The increased demand is partly because tenants who cannot afford to buy are flooding the market and secondly we are seeing increasing numbers of homeowners becoming ‘accidental landlords’ because they simply cannot sell their house or cannot consider selling as they find themselves in negative equity’.

Neil concludes ‘There are so many different factors adding into the mix  that the economic predictions are also giving confusing messages, with some saying we are heading out of recession while others are saying this is just a blip and we will fall further into recession over the coming months.  We have the governments’ cuts which are considerable in places which will undoubtedly see people ‘tighten their belts’.  Also a real issue will be whether or not the base rate will remain low; this has prompted speculation into where mortgage rates will go in the next six to twelve months. With this in mind, Neil has warned that such increases could push landlords over the edge. As some lenders increased their fees in August, escalating the payments on a mortgage of £250,000 by £70 a month, an interest rate increase in 2011 could see the UK hit by many more repossessions. Many landlords are finding that they are already stretched to capacity. If mortgage rates do increase, it will of course result in more repossessions. It is also highly likely that a rate increase will result in many landlords suffering negative equity as prices would potentially drop due to even further reduced demand. The Bank of England, which has frozen rates for the past 18 months, is rumoured to begin increasing its key rate from the middle of next year, affecting even those with tracker mortgages. In line with these predictions, a number of economists have also speculated that the Bank of England may enforce two 0.25pc rises in 2011. Neil continued: “If the predictions of an interest rate rise in 2011 are correct, the impact on the rentals market will be immense. Not only will landlords be faced with higher mortgage bills, but tenants will suffer too as landlords try to push up rents to cover their increased costs. Many low income families who cannot afford to buy properties in the current market are opting for rental properties, because it is the cheaper option. This could however be extremely short lived if the Bank of England does decide to increase its key rate."  Martin & Co Lettings Blackwood are Specialists for Lettings including Property Management, Tenant Find, Investment, buy to let mortgages, Furniture Packs and Investment Property Insurances.