Average rents across England and Wales rose to £757 per month in August, after a monthly increase of 1.8%. On an annual basis, this leaves rents 2.1% higher than September a year ago.
Rents now stand at levels £13 per month higher than the previous all-time record, set in October 2012 when monthly rents averaged £744 across England and Wales.
Record rents also mirrored faster lettings activity. The number of new tenancies across England and Wales increased by 6.5% compared to August, taking the number of new lettings in September to levels 9.2% above those seen in September 2012.
Nine out of ten regions saw rents rise between August and September. The fastest monthly rise was in the South East, where rents are 3.3% higher than a month ago. Meanwhile the North West saw a 2.7% monthly rise, closely followed by the West Midlands at 2.6%. The only region to see lower rents in September was the East of England – after a 0.8% monthly drop.
On an annual basis, the East of England was also the only region to see lower rents – down 1.4% since September last year. However, the latest rises take London rents to levels 4.4% higher than a year ago, followed closely by 3.1% in Wales and 2.0% in the West Midlands.
Seven out of ten regions have seen individual all-time record rents. Rents have never been higher in Wales, the West Midlands, East Midlands, North West, Yorkshire and the Humber, London and the South East. Only the North East, East of England, and the South West have ever seen higher rents.
David Brown, commercial director of LSL Property Services, comments: “A new peak in tenant demand has driven rents to new heights, well above all previous records. Higher rents in almost every region show that, despite government schemes, buying a first home is still a difficult aspiration. This is not only down to low salary growth, but also a general shortage of supply – which is the underlying reason why homes are getting more expensive. The long term-trend to renting therefore looks unlikely to change significantly in the near future, despite the better availability of finance compared to previous years.”
Gross yields on a typical rental property rose to 5.4% in September, compared to 5.3% in August. Taking into account capital accumulation and void periods between tenants, total annual returns on an average rental property rose to 7.4% in September, compared to 6.1% in August. In absolute terms this represents an average return of £12,129, with rental income of £8,164 and capital gain of £3,965.
If rental property prices continue to rise at the same pace as over the last three months, the average buy-to-let investor in England and Wales could expect to make a total annual return of 13.6% over the next 12 months, equivalent to £23,028 per property.
David Brown comments:
“Landlords have benefitted from strong yield growth for some time but with such a reignited purchase market, there’s now more of a ferocious incentive to invest in the private rented sector than ever before. We expect rental yields to hit 5.5% by the middle of this decade – which alongside the recent trend for price rises, gives every indication the next twelve months are set to heat up even further.”
Tenant finances experienced a setback in September, with the total amount of late rent across England and Wales rising to £294 million – or £30 million more than August. As a proportion, this represents 8.5% of all rent, up from 7.8% in August. However, on an annual basis tenant arrears have improved, with the total amount of late rent down £13 million, and down as a proportion on an annual basis, from 9.1% of all rent in arrears in September 2012.
David Brown concludes:
“Household budgets are still under pressure from all angles – inflation is static at around three times wage growth, and the wider economy is still only taking baby steps on the road to a full recovery. However, that pressure is starting to ease a little. The latest rent rises are another month of below-inflation increases, and while wages aren’t catching up yet, the gap between wage growth and rent rises seems to be gradually shrinking. An annual improvement in tenant arrears demonstrates the underlying healthy trend following the worst of the recession – with the proportion of late rent down from well above 10% a few years ago. Critically, the most severe rental arrears have fallen significantly, meaning fewer people might lose their home. Cautious optimism is the order of the day, and certainly, the worst of the storm has passed.”
Duncan Kreeger, director of West One Loans, says:
“Tenants who are unable to buy their own home rely on the private rented sector. But in order to meet this demand, landlords rely on lenders to help them supply more homes onto the lettings market. Serious returns are on offer for landlords who want to play their part in expanding the supply of rental homes – but without the right type of finance, this is almost impossible.
“Unfortunately, the right type of properties don’t always exist in the right places. So entrepreneurial landlords seek to convert properties that would otherwise be unsuitable – such as empty offices or large empty homes – into quality homes for the lettings market. But without imaginative forms of finance, which offer the speed and flexibility to finance such complex projects, this would be almost impossible.”
David Whittaker, managing director of Mortgages for Business, says:
"Renting has become as vital for the UK economy as the home purchase market. The private rented sector is an industry that just seems to keep growing. Through recession and recovery, tenant demand continues. So to keep rental inflation under control, getting more homes on the lettings market will be vital. The incentives for landlords are an important part of that effort. Currently rental yields on all types of property is well above 5% but on HMOs (properties rented by sharers) for example, properties can often command rental yields above 10%. Many landlords are expanding their portfolios but accessing the right sort of finance is essential to making that possible. This is the other side to the struggle for first time buyer mortgages – the need for more cash to fund much-needed rental homes.”
