Home rent costs 'soaring' as credit crunch fuels extra demand

Strong demand has pushed the cost of renting a home through the £1,000 a month barrier for the first time, figures showed today.

The average cost of renting a property in England and Wales reached £1,003 a month in March, a rise of 4% during the past quarter and 12% during the past six months, according to specialist lender Paragon.

The group said rents were being pushed up by buoyant demand, which was creating a strain on the number of properties available in the sector, and this trend was likely to continue.

It said a third of landlords said tenant demand was "expanding rapidly" during March, the highest figure for nearly four years, with a further 58% saying demand was "strong and stable".

Rising rents helped keep yields stable at 6.3% for the third month in a row, the group said.

John Heron, Paragon's director of mortgages, said: "The backdrop for buy-to-let remains positive across the country.

"Potential residential purchasers are reluctant to buy in the current market or are unable to secure a mortgage and this is fuelling extra demand for rented accommodation."

He added that despite concerns that professional landlords might be tempted to sell up, taking advantage of the new capital gains tax regime and previous house price gains, the majority were committed to the market for the long term.

He said these investors typically held on to their properties for a decade or more, adding that they were not coming under financial pressure as a result of the credit crunch as they typically borrowed less than 40% of the value of their property.

The average buy-to-let property is now worth £191,276, 11.3% more than in March 2007, with the average home purchased 12 months ago generating total returns of 17.4%, taking into account both house price appreciation and rental income.

Investment properties in the South West are generating the highest returns at an average of 33.7% during the past year, followed by those in East Anglia at 30.6%.

But investment landlords in Wales have made an 8.3% loss during the 12 months to the end of March, with those in the North making a loss of 6.5%.