"Landlords comparing rental income with the value of property can find it difficult to make enough profit in parts of London and the South East at the moment," said Charles Reed, managing director of UCB Home Loans. "Careful purchasing of property can offer landlords rental returns of between 8 per cent and 10 per cent in some parts of the country, while in parts of London and the South East a 5 per cent return is sometimes difficult to achieve. Combine this with the fact that London property may cost more than twice as much to purchase in the first place, and the current attraction of less expensive areas becomes obvious."
The current difficulty in London has been blamed in part to a fall in the corporate lettings market, which constitutes almost a third of the London market, but less than a tenth of the regional market. The fall in demand for corporate lets has been blamed on 11 September, and because of weakness in financial markets.
Reed said: "Our mortgages for purchase of rental property in some parts of London have fallen by up to a third, while at the same time there has been increased interest in rental property in Scotland, the Midlands, East Anglia and the North. To some extent, this is due to the fact that other parts of the UK are now catching up on the lead initially shown in London and the South East. Overall, our buy-to-let lending for the last quarter of 2001 almost doubled that for the same period in 2000."
While rents have been fairly static recently, they are expected to pick up again as the year progresses, and not just in the regions.
"Over the next six months we expect rents to start rising again," said Reed. "The property market is looking reasonably strong at present and, as with house prices, we would expect the biggest rent increases to be seen in the regions, although London will also start to move upwards as the over-supply of rental property eases."
