Rent levels heading for the roof

Rents in Britain are rising sharply because of an acute shortage of lettable homes, according to a report by the Royal Institution of Chartered Surveyors.

The more expensive end of the market is seeing the worst shortages, the society said, and it warned the situation was likely to worsen over the coming months as demand grows.

A trend to a more mobile workforce and legislation giving security to short-term tenants have boosted the rent market.

The survey showed that 76% of landlords will choose to re-let their properties after existing tenancies expire.

Thousands of landlords, who have been unable to sell over the past seven years because of negative equity, are likely to sell now their properties have risen sharply in value.

The number of properties in negative equity, where the value of the loan exceeds the value of the property, has fallen from two million at the end of 1995 to fewer than 100,000 today, the RICS said.

In London the lettings market has proved particularly strong and rents throughout Britain were rising "significantly".

Shortages of rented homes have been made worse by landlords choosing not to re-let properties because they believe it is difficult to regain possession, their conviction that values have peaked and problems in getting departing tenants to repair damage.

RICS spokesman Jeremy Leaf said recent interest rate rises, shortages of supply and a perception that the housing market may be overheating, have boosted activity in the rental market.

"In the light of recent turbulence in the stock markets and with letting yields reaching 10%, the lettings market has been seen as an attractive alternative investment for those looking for a less volatile income source," he added.