Property: Is the smart money spent on the rent?

HOW many people would, or could, fork out pounds 5,500 a month to rent a home? The same sum would finance a mortgage of more than pounds 700,000. The answer, apparently, is plenty. In the midst of economic ruin, Britain is still a magnet for foreign buyers happy to pay high rents for large country homes or smart Knightsbridge flats.

Senior executives of American or continental banks posted here for two or three years demand palatial homes to impress clients, says Hilary Walker, of agent Hamptons. 'Companies foot the bills and they don't want to pay large amounts to buy - particularly when values are falling - so they rent.'

It takes a Tudor manor in the Surrey stockbroker belt with its own indoor pool and helicopter pad to justify pounds 5,500 a month, but even smart Hampstead flats were fetching about pounds 2,500 a month during the summer - 15 per cent more than in the spring. A Bath townhouse can be rented for pounds 1,400 a month, more than the payments on a pounds 150,000 mortgage.

More and more people are opting to rent a home, even when it is actually more expensive than buying. One couple have found themselves in a rental chain. David and Sally Fox moved from their Oxfordshire home to a nearby cottage. 'We found ourselves letting to someone who had also rented out her own home,' Mr Fox says.

A company was renting the Foxes' new tenant's London flat, providing her with enough to pay both her mortgage and the rent for the Foxes' home.

The surge in lettings has improved the prospects of many an agent hard-up for sale fees. Simon Agace, chairman of London's Winkworth chain, has got in on the act himself. He has leased out his own home near Holland Park, west London, for more than pounds 3,000 a month to a succession of bankers and decamped to a peaceful life in Hampshire.

With interest rates falling, people are constantly recalculating whether it is cheaper to rent or buy. Ian Dickson, Winkworth manager in Dalston, east London, says he is astounded at the number of potential buyers who are unaware of cheap mortgages. Many who had given up home-hunting are switching back once the figures are explained, he says. They are particularly keen on flats with an extra bedroom that can be let if they fall into financial difficulties.

One of his customers, Robert Marchant, has been renting for a couple of years in Dalston, but looked again at the choices when his flat-mates moved out. 'I found it would cost almost the same to buy a two-bedroom flat in Hackney for pounds 50,000 as it would to rent,' he says.

Not every home falls the right side of the fence, however. Buying a one-bedroom flat costing between pounds 70,000 and pounds 82,000 is cheaper than renting in an area such as Fulham, says Robin Patterson, managing director of Cluttons. Rents range from pounds 606 to pounds 866 a month compared with net repayments on a 95 per cent mortgage at 9.25 per cent of pounds 540 to pounds 640.

IN the wake of last week's interest rate fall, agents across the country report an increase in activity among first-time buyers. 'But they still refuse to commit themselves in the present economic situation,' says Peter Miller of the Royal Institution of Chartered Surveyors.

Despite lower interest rates and cheap prices, the furore surrounding withdrawal from the ERM 'served only to confuse and unnerve an already anxious market', says the RICS quarterly survey.

Perversely, falling interest rates may even be preventing people making a move. Barratt has just cut its fixed-rate loan deal on new and second-hand homes to 7 per cent, the lowest level since the early Sixties, says Frank Eaton, its chief executive.

THERE are few signs that the softer line by lenders on repossessions is staunching the flow of cheap property that is dragging other prices down. In fact, Allsop's, the country's biggest auctioneer, has had to spread its sale at the Hyde Park Intercontinental Hotel over two days from Monday because it has 140 properties going under the hammer. Reserves start from as little as pounds 10,000 for a one-bedroom London flat.

----------------------------------------------------------------- RENT VERSUS MORTGAGE ----------------------------------------------------------------- PROPERTY IN FULHAM, PRICE MORTGAGE RENT NET REPAY WEST LONDON (95%) /MONTH /MONTH (pounds) (pounds) (pounds) (pounds) ----------------------------------------------------------------- One bedroom (flat) Fulham Park Gardens 78,000 74,100 736.67 640.37 Two bedrooms (flat) Settrington Road 120,000 114,000 953.33 1,012.07 Three bedrooms (house) Quarrendon Street 185,000 175,750 1,668.33 1,585.56 Four bedrooms (house) Landridge Road 280,000 266,000 2,058.33 2,436.11 Five bedrooms (house) Broomhouse Road 325,000 308,750 2,275.00 2,837.37 ----------------------------------------------------------------- The mortgage repayment figures are based on a 25-year term and the endowment figures are for a male non-smoker aged 35 and a female smoker aged 30. Mortgage repayments assume an interest rate of 9.95%. Source: Cluttons -----------------------------------------------------------------