Landlords demand higher rent as hesitant buyers ride the credit crunch

*TENANTS are facing a 50% rent rise in Scotland's two biggest cities as landlords cope with rising demand for rented accommodation.*

Letting agency DJ Alexander says the clampdown on mortgages is forcing potential first-time buyers to remain in rented accommodation rather than buy their own home.

Lenders are pulling mortgages and increasing the amount of deposit they require
from borrowers, blaming a lack of liquidity in the banking system.
Last week Alliance & Leicester became the latest lender to announce higher rates for borrowers unable to raise a large deposit.

Customers offering a 10% deposit on a fixed-rate deal will pay around 0.5% more than someone with a 25% deposit. A&L joined the UK's two biggest lenders, Halifax and Nationwide, in penalising customers with smaller lump sums to put down.
David Alexander, owner of DJ Alexander, Scotland's biggest independent rental agency, has predicted that landlords will benefit by being able to hike the rent on quality properties by 50% over the next year.

DJ Alexander recently signed a lease for a client on a two-storey property in Dean Park Crescent, Edinburgh, on which the rent has jumped from £1,000 to £1,650 a month – a rise of 65%.

"The rationing of mortgages by the banks and building societies is making life increasingly difficult for first-time buyers, which means more young professional people are staying in rented accommodation rather than moving on to owner-occupation," he said.

"Naturally, this has had an effect on market demand, and when a lease comes to an end landlords are generally in a position to raise their rental charges by a substantial proportion."

He pointed out that rising rental income is a welcome antidote for landlords who have seen capital values stall, even in normally buoyant markets such as Edinburgh's New Town and the Hillhead area of Glasgow, as house price inflation slows. DJ Alexander has other examples of higher rents being agreed. It recently let a four-bedroom flat in Edinburgh's Dundas Street for £2,000 a month, up from £1,600 a month. A one-bed flat in Leith is generating a rental income of £650, up from £500, and a two-bedroom flat in Park Terrace has gone up to £1,350 from £1,100. Alexander is not alone in his confident outlook for the residential property market. Citylets, a Scottish rental portal, agreed the upside of the credit crunch for landlords is that increased demand from hesitant or frustrated buyers has allowed rent rises.

Its spring 2008 report revealed that rental inflation, which had been relatively modest over in recent years, had picked up pace in the past two quarters.

In Edinburgh, the average rent for a two-bedroom flat let through the portal increased by 6.3% between the first quarter of 2007 and 2008 to £676.

The latest buy-to-let index put out by specialist lender Paragon, released earlier this month, found that "buoyant demand for rented homes is placing a strain on the stock of private rented sector accommodation, creating upwards pressure on rents".

By Rosemary Gallagher