The Royal Institute of Chartered Surveyors has said that the buy-to-let market has come to a standstill as a result of rising interest rates.

Announcing it’s May publication on the state of the lettings market, RICS reported that new lettings by landlords have halted for the first time since 1998. Current interest rates are deterring new buy-to-let investors from entering the market.

With no new letting instructions, indicating a ‘flat market’, existing landlords are holding firm, with a declining number putting their property up for sale after tenancy agreements expire.

However, there is a sign of increased demand with many tenents renting whilst waiting for the next move in the housing market before deciding to buy their own homes.

21% more surveyors reported a rise in tenant demand, up from 14% in the previous quarter. The demand is greater for flats, which are seeing the largest demand increase in two years.

Surveyors continue to expect moderate rental increases, with 14% expecting rents to rise in the next three months, though their optimism has dipped slightly since the beginning of the year. Any deterioration in the employment market could reduce expectations further.

RICS spokesperson, Jeremy Leaf said; “Poor prospects on return and capital growth are keeping new investors out of the buy-to-let market although continuing healthy tenant demand means existing landlords are holding firm.

Another reason why investors are holding on to their residential real estate may be imminent changes to pension rules (A-Day, April 6, 2006). After this residential property will be allowed to be included in personal pension funds for the first time.

Already some companies are marketing an effective discount on property purchased now. That is, buy off-plan now, benefit from any capital growth and then include the property in your pension next year. However, as always investors should be cautious and consult a professional adviser or they risk getting caught out.”
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