The number of people instructing letting agents to rent out their homes rose at a record pace during the second quarter of 2008, as increasing numbers of would-be property sellers struggled to offload their home at a reasonable price.

According to the Royal Institution of Chartered Surveyors’ (Rics) quarterly residential letting survey, published today, the number of new instructions received by letting agents increased at the fastest pace in the survey’s 10-year history, providing the evidence that increasing numbers of homeowners are deciding they would rather rent out their property than sell it at a knock-down price.

Some 43 per cent of chartered surveyors reported a rise in instructions over the quarter, up from 30 per cent during the first three months of the year.

“The lettings market is booming, with many vendors opting to rent their property while sales in the housing market continue to dry up,” said James Scott-Lee, a spokesman for Rics. “Many are willing to ‘hold’ and await the return of capital appreciation. Becoming a landlord is now an increasingly profitable option with rising rents and yields offering good returns.

“Established investors have been reaping the benefits of the housing downturn for some time and will continue to do so in the short term. However, ever-increasing supply could have an impact on rental growth as tenant options increase.”

Property prices have fallen by almost 10 per cent over the past year, and much faster in some areas of the country, as the number of buyers has fallen sharply. Meanwhile, rents have been slowly increasing in most regions, improving prospects for amateur landlords.

However, the growth in the number of new landlords will put further strain on the buy-to-let mortgage sector, which is already struggling to meet demand. Bradford and Bingley and Paragon, the sector’s two largest lenders, have pulled back from writing any significant volume of new business in recent months, creating a glut of supply. According to Moneysupermarket.com, the financial comparison site, the number of buy-to-let mortgage products on offer has fallen from more than 4,300 to just over 300 over the past year, meaning only those with excellent credit records and a significant amount of equity in their homes are being accepted for new loans.

David Hollingworth of London & Country, the fee-free mortgage adviser, said homeowners need to think carefully before deciding to become an amateur landlord. “This is a drastic measure, and will usually result in taking on a much greater level of mortgage debt than originally planned at a time when credit is more expensive and not as freely available.”

“Borrowers need to fully understand the costs and risks that come with being a landlord before putting additional stress on their finances. Both properties are likely to be subject to larger mortgages, and payments need to be met whether there are tenants in place or not.”

The growing number of new amateur landlords has created a two-speed market, with many amateur buy-to-let investors now trying to exit the market in response to the collapse in prices.

Thousands who bought properties over the past few years are still struggling to generate enough rent to pay their mortgages – and are now facing even higher borrowing costs when they come to refinance. While they had hoped a continued rise in capital values would help them to achieve a profit, the collapse in the market has encouraged many to sell.

Meanwhile, the number of landlords defaulting on their mortgages has risen sharply over the past few months, and Bradford & Bingley has predicted that the market may only get worse during the second half of the year.

News reported by The Independent

Having previously tried to resist market forces, property sellers have begun aggressively to cut the asking prices for their homes, according to the online estate agency Rightmove.

After months where asking prices moved down by much less than the actual prices agreed on property deals, householders slashed the asking price of the average British home by 2.3 per cent last month – a drop of £5,403. In London, the discounting has become even more marked, with asking prices down by 5.3 per cent last month alone, representing a reduction of £21,000 in the four weeks to 9 August, said Rightmove in its latest survey of the housing market.

The 2.3 per cent fall in asking prices represents a significant quickening of pace on the 1.8 per cent and 1.2 per cent drops in the preceding months, and is the largest fall Rightmove has ever measured in August.

Miles Shipside, commercial director of Rightmove, said: “Sellers coming to the market in the middle of the summer holiday season tend to be more motivated. London, in particular, appears to be having its own special summer sale.” Prices in the capital are 3.8 per cent lower than last year, compared with 4.8 per cent nationally.

Rightmove said that national asking prices reached a peak for the year at £242,500 in May, compared to selling prices, as measured by the Halifax and Nationwide indices, which peaked last autumn. The catch-up is attributed to “some discretionary sellers choosing not to enter the market, leaving a higher proportion of forced sellers who price more aggressively”, said Rightmove.

Such anecdotal evidence is supported by the most recent survey of the housing market by the Royal Institution of Chartered Surveyors, which also detected an increasing number of distressed sales, especially in the south and East Anglia. The number of new mortgage approvals, says the Bank of England, is down 70 per cent on last year.

The latest survey also confirms that business is extremely slow for estate agents. Rightmove says that the average unsold stock of property per estate agency branch has increased again to new record levels: in spite of the low supply of new instructions, it now stands at 78, up from 77 last month: Mr Shipside said this indicates that the number of transactions will continue to be at historical lows.

“The number of transactions this year is in danger of being the lowest since 1959. This raises serious questions as to whether any short-term incentives by the Government or the Bank of England would be effective in speeding up the market recovery against the backdrop of the global problems of the credit crunch.”

Meanwhile, a separate survey published today found that more than £18bn of equity tied up in buy-to-let properties will be cashed in over the next few years, as Britain’s private landlords sell out of the sector in their droves.

The insurance giant Skandia said the total buy-to-let mortgage stock will reduce to just £44bn within the next few years, as thousands of landlords sell up and pay off their loans. Last year, buy-to-let mortgage balances topped £120bn – a rise of more than 20 per cent on the previous year and some 60 times greater than the £2bn which was outstanding a decade ago. By the end of 2007, private landlords represented one in 10 of all UK mortgages, up from well under 1 per cent back in 1998.

Nick Poyntz-Wright, chief executive of Skandia UK, said: “Higher mortgage rates and falling property prices will cause investors to reconsider their exposure to residential property, and many will choose a more diversified approach.”

News reported by The Independent