Sell-to-let the new rage

FRESH evidence that London's housing market has come off the boil emerged today with news that the lettings market is recovering.

Rents in the capital's most exclusive areas such as Chelsea, Mayfair and Belgravia enjoyed their first positive annual growth for three years in the second quarter, according to a report from estate agent Knight Frank.

The letting market's road back to health is partly attributed to a wave of wealthy corporate tenants, particularly Russians, moving into town to take advantage of recovery in the City.

But there are also signs that some canny homeowners have sold at the top of the market and are renting temporarily in the hope prices will collapse.

The average rent per week in London's most sought-after areas was £780 in the second quarter, up 0.5% on a year earlier. Eighteen months ago, rents were falling more than 10% year-on-year.

On a month-on-month basis, the average rent per week rose 0.7% in June, following increases of 0.3% in May and 0.1% in April.

The report comes a day after Hometrack reported house prices in the capital have fallen for the first time in a year as interest rate rises and Bank of England warnings have had the desired effect of cooling the market.

It said prices had fallen 0.4% over the past month, with the decline as steep as 1.9% in Camden and 1.3% in Hammersmith & Fulham. A separate report from property website Primelocation earlier this month showed house prices in London's most expensive areas fell by 1.3% in June.

Tim Hyatt, head of lettings at Knight Frank, said: 'As the base rate increases, renting becomes more affordable relative to buying.

'Reinforcing this trend, there is an increasing perception that short-term capital growth prospects are minimal which is encouraging a small but increasing proportion of those who have sold to rent, if only as a temporary arrangement.î

The firm predicts annual rental growth will accelerate from 0.5% to 2% by the end of the year. Yields, which have dropped from 7.8% to 5% over the past five years, are also set to rise.

Liam Bailey, head of residential research at Knight Frank, said: 'With the recovery in the City and growing international economic confidence, rentals have begun a slow recovery. It will be some time, however, before they recover to levels last seen in 2002.'

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