Rents Fall
A growing supply of property in the buy-to-let sector has pushed down monthly property rents for the second consecutive month.

In January, the average rent in England and Wales dropped 0.3 per cent to £682 per month, data from LSL Property Services' monthly buy-to-let index has shown.

The average yield fell slightly to 4.9 per cent in January, as rents declined at a faster pace than rental property values.

David Brown, estate agency managing director of LSL Property Services, claimed the "recent loosening" in the buy-to-let mortgage market has boosted the supply of rental homes on the market, a crucial factor in the temporary drop in rents.

In the last quarter of 2010, the number of buy-to-let loans leapt by seven per cent according to the Council of Mortgage Lenders (CML).

Despite the slight decrease in rents, they are still four per cent higher than a year ago and are showing signs of renewed growth in several areas of the country including the Midlands.

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House Prices to Fall 20%
The average home is up to 20% overvalued and 2011 could bring prices crashing back to earth

Homeowners should brace themselves for a "short, sharp shock", with house prices set to fall by up to 20% over the next two years as rising unemployment and public spending cuts take their toll, experts are warning.

The cost of the average home fell by up to one-fifth between mid-2008 and the end of 2009 as the credit crunch gripped the mortgage market, but then regained about half of that ground last year, aided by record low interest rates.

With the Bank of England's policymakers locked in an acrimonious public row about whether rates should start rising again to choke off inflation, analysts say prices now look too high to be sustainable.

"Prices are trending slowly downwards at the moment, but our view is that this is really the start of the second leg of the correction, and we expect prices to fall significantly further," said Paul Diggle, property economist at consultancy Capital Economics.

He calculates that the average home remains up to 20% overvalued by historical standards – and with the mortgage market still tight and unemployment rising, 2011 could bring prices crashing back to earth.

Andrew Brigden, of financial research group Fathom, agrees that homeowners can expect a rough ride. Fathom reckons house prices are 20%, perhaps even 30%, too high relative to average wages.

"I think the correction will come at some point, even if interest rates stay where they are, but if rates go up, that will hasten it," he said.

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