Worries over house prices are prompting homeowners in London and the South East to sell up and rent - in the hope to make a profit whilst the market is still strong, says the Royal Institution of Chartered Surveyors (RICS) in its survey of the residential lettings market, published today.

Tenant demand for flats and houses has remained strong throughout the Christmas/New Year period. Surveyors say this is down to the uncertainty surrounding house prices.

The survey also shows rents are down for the fourth quarter in a row, in most regions across the country. A net 9% of surveyors reported a drop in rents, compared with 6% in the previous quarter. Falls were most noticeable in London and the South East, where last year’s buy-to-let boom brought an abundance of property onto the rental market. The average monthly rent for a one bedroom flat in London is £1029 and £550 in the South East.

Rents elsewhere held up better, with slight rises in the Northern regions and the West Midlands. Typical monthly rents for a one bedroom flat are £350 in the North East, £385 in the West Midlands and £403 in the East. A net 14% of surveyors predict that, on the whole, rents will rise in the coming months, and in London and the South East rents will stop falling as tenant demand continues to strengthen.

New properties to let coming onto surveyors’ books rose only slightly this quarter, with a net 7% of surveyors reporting a rise, compared with 32% in the previous quarter. 87% of new instructions were from private landlords, down from 89% in the previous quarter. This indicates that the buy-to-let craze that dominated the market throughout 2002 is stabilising.

Investor interest is still strong in the Northern regions where properties are cheaper to buy, but at the same time, surveyors reported that due to the uncertainty in the sales market, some investors are selling their rental properties to realise their capital gains.

RICS residential lettings spokesman, Jeremy Leaf, said:

“We have certainly noticed a change in the lettings market over the past quarter. There has been renewed tenant interest in smaller properties in particular, as would-be buyers are renting temporarily, waiting to see if sales prices fall. Many homeowners are also selling up and renting, hoping to make a profit from buying in a declining market.”

“Previous over-supply of property is keeping rent levels in check and is likely to result in more balanced lettings as well as sales markets in the coming months.”