Rents soar as 100% mortgage deals disappear

Rents in London are soaring by almost eight per cent a year as tens of thousands of would-be house buyers scrap plans to get on the property ladder.

Landlords say they have seen the strongest demand from tenants for decades following a collapse in property purchases since the start of the credit crunch.

Young buyers have been effectively driven out of the market and into renting by the disappearance of 100 per cent and 95 per cent mortgages.

Rents in parts of the capital are rising by more than two per cent a quarter and increased 7.8 per cent Londonwide in the year to June, according to the Gumtree advertising website.

The highest average monthly rents were in Westminster (£1,986) followed by Kensington and Chelsea (£1,725) and Islington (£1,480). The growing influence of Canary Wharf pushed rents in Tower Hamlets to an average £1,407. The lowest London rents were in Bexley (£897) and Barkingand Dagenham (£929). Some property experts claim the London market is in the midst of a major restructuring, with rentals rising as attitudes to property ownership shift among young professionals.

Landlord Michael Holmes, author of Renovating For Profit, said: "Until now renting has been a bit of a dirty word. I was brought up to see it as 'money down the drain'. Owning a house is deeply ingrained in the British psyche and it's our equivalent of the American dream. But in the new economic climate we're seeing a real shift in attitudes."

Since 1994 house prices have soared 300 per cent while rents have risen 50 per cent.

The Gumtree report found 67 per cent of young homeowners would not hesitate to sell up and rent if they found their mortgage payments unmanageable. More than two thirds of renters between 25 and 44 were not planning to take out a mortgage at any time and more than 80 per cent wanted to continue renting "for the foreseeable future".

Website propertyfinder.com said searches for rental property shot up by 44 per cent in the past year.

Spokesman Nicholas Leeming said: "People trying to rent a property are saying it's very difficult to get somewhere at the moment."

But further up the property ladder, conditions for landlords are less buoyant because of the flood of homes being let by vendors refusing to accept reduced sale prices.

Emily Dawes of agents Marsh & Parsons said: "On the renewals side, prices are rising, with landlords getting around five per cent more. But in the open market it is very different because of the oversupply of property." She said there was also a trend for six-month rather than 12-month leases so landlords and tenants could review their options if the market improved.