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Flat out-rent houses in January 2010 - 9 February 2010

In the rental market, flats are outperforming houses, with people favouring cheaper properties in the current environment, according to the January FindaProperty.com Rental Index.

Rents for houses have been falling for the past two months, with a 2 per cent decline in December followed by a further decline of 2.9 per cent in January to £829pcm. In contrast, flat rental values were stable in December and increased 0.4 per cent to £752pcm in January, showing mixed fortunes for the two property types. The overall average UK asking rent is now £804pcm, 2 per cent lower than a month ago and 4.3 per cent less than in January 2009.

The supply of houses available to rent rose by 3.2 per cent while the number of flats fell by 0.3 per cent. The supply of flats is now at one of the lowest levels since the end of 2008 which is contributing to the rise in rents. In addition, the shortage of flats on the market is outstripped by sustained demand, with 52 per cent of renters searching the site in the first week of January looking for this property type.

The rise in rental values for flats can be attributed in part to greater demand from renters who are either financially constrained or are saving vigorously for a deposit on their next home. While there has been a slight easing of lending criteria, flats, the traditional entry level prop erty, have only become slightly more affordable. First-time buyers still need to find £55,500 once they have secured their maximum mortgage, which represents 21 months’ gross first -time buyer income, hence the need to save.

While many renters are compromising on the type of home they take for budgetary reasons, they clearly still aspire to live in a house. Searches for houses rose 27.3 per cent compared with 14.4 per cent for flats.

The good news for landlords is that flats are offering better returns. The average gross rental yield for flats in January is 5.18 per cent compared to 4.19 per cent for houses.

Nigel Lewis, property expert at FindaProperty.com, said, "The flat rental market is showing signs of improvement at the moment driven by the greater number of people opting to live in flats during the recession which by default is a cheaper and therefore more popular choice than houses. This, coupled to the lower number of flats coming onto the market, is conspiring to ratchet up rents in the short term."

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