22/06/2012 06:12 BST

UK Housing: Competition Pushes Up Rents

Strong competition among tenants has caused rents to rise for the second month in a row, a study said on Friday.

The average rent rose by 0.4% in May to reach £712 a month, according to lettings network LSL Property Services, which owns chains Your Move and Reeds Rains.

The increase has returned rents to the level they were at in January, before a rush of first-time buyers to beat the deadline for a stamp duty concession in March caused activity in the rental market to slow down.

uk housing rents up

However, the study suggested that it is not just "involuntary renters" unable to raise a deposit to buy a house who have ramped up the competition in the rental sector, as many people are choosing to rent due to the uncertain economy.

The study said that with people still struggling to get on the property ladder and the flexibility offered by renting amid the uncertain economy, there are unlikely to be big declines in the rents any time soon.

The annual increase in rents has slowed down slightly across England and Wales, with rents 2.3% higher than they were a year ago, compared with 2.4% higher in April.

Rents rose at their highest annual rate in London, where at £1,038 a month they are at their highest amount recorded by the study and 4.2% higher than they were a year ago.

The study suggested rental demand in London is set to increase in the coming weeks as tenants bring forward house moves to try and avoid the disruption of the Olympics.

Meanwhile, the East Midlands saw the biggest annual fall in rents among the regions, with a 1.5% drop to reach £535 a month.

David Newnes, director of LSL Property Services, said: "The end of spring has brought with it renewed activity in the rental market, and rents have returned to the level seen before the impact of the stamp duty deadline rush by first-time buyers.

"The reality is that thousands of frustrated buyers are still financially trapped between a rock and a hard place. Historically high rents and rock-bottom savings rates are hampering attempts to save for the larger deposits banks now require - not to mention meeting the cost of the reinstated stamp duty tax.

"In turn, fewer tenants are able to leave the sector, and the strong tenant competition is pushing up rents as a result, making saving for a deposit harder still."

Mortgage lenders have been tightening their borrowing criteria and raising their rates in recent months, and analysts have been cautious in their views as to whether recently-launched Bank of England measures to kick-start household lending will have a significant trickle-down effect.

Mr Newnes added: "Given the current concerns over the economy and labour market, the flexibility of renting is proving attractive for those adopting a wait-and-see approach to house purchase."

Overall rental arrears fell back slightly from April as household budgets have improved slightly with easing inflation, with 8.9% of all rent late or unpaid at the end of the month.

Campbell Robb, chief executive of Shelter, said: "This is yet more proof that renting is no longer the easy, cheap alternative to home ownership - for thousands of families priced out of owning a home, renting is fast becoming a way of life.

"With rents rising across the country, many families will now be approaching crisis point, facing a daily struggle to make ends meet. Shelter research shows that 38% of families with children who are renting privately have cut down on buying food to pay their rent."