In October, UK rents rose by 0.4% to £691 per month – surpassing September’s record high of £689. The annual inflation in the average UK rent has grown to 4.5%. If rent inflation continues at the same pace, the average rent will hit £722 pcm this time next year.
The average yield remained stable at 4.9% in October, as steady rent rises were matched by modest growth in the prices of rental properties.
David Brown, commercial director of LSL Property Services plc comments:
“Rents have been creeping upwards, month in, month out for the last year, and now stand just a few pounds shy of £700 per month. The recent increases are likely to steady slightly in run up to Christmas – traditionally a slower time for the market. But a strong underlying growth will remain, as the key market dynamics are geared towards further rises.
“Constrained mortgage finance is choking off the number of first-timers able to get on the ladder, and would-be landlords’ ability to buy investment properties. With rising demand outpacing the increase in supply, rents can only go one way.”
Rents rose across the whole of the UK – except in Yorkshire and the Humber, where they fell by 1.4%. The growth was most pronounced in the South East, where rents rose by 1.2%, and the North East, where rents increased by 1%.
Brown explains:
“It will be some time before the dust settles, but we’re likely to see a changing rental market at a local level in many places following the government’s changes to housing benefits. For instance in more expensive areas of London, the cap on benefits will weaken demand from tenants, alleviating upwards pressure. But we may see migrating renters move to cheaper outlying regions, pushing up demand and rents.”
Tenant finances were in better shape as landlords saw tenant arrears drop for the second consecutive month. Unpaid rent totalled £221m across the UK in October, down from £229.3m in the previous month. With just 9.3% of all UK rent unpaid during the month, it hovered just 0.1% above its best performance on record.
David Brown continues:
“Falling arrears provided another boost to landlords in October. Following the flurry of tenants who move for new jobs in September, new tenants have had time to settle, get their finances in order and ensure that their landlords are receiving rent on time.
"Whether they’ll stay as low or not in the near future is less certain. Government spending cuts will certainly take its toll on many tenants’ finances – and we’ll see increasing regional disparities occur as some regions, more dependent on public sector employment are hit disproportionately.”
The rise in rents means that an investor buying property could now expect a total annual return of 8.1%, the equivalent of £13,799 on a typical rental property . With steadying house price inflation in the latter part of 2010, the average total annual return on a property has fallen from it’s peak of 13.4% in May.
Over the past year, the average UK landlord made a total annnual return of 9.6%, £15,531 – the equivalent of £7,430 in rent and £8,101 in capital gains.
Brown concludes:
“Returns are dipping as annual house price growth slows, but it is a great time for landlords to invest. Tenant demand continues to lift rents, yields have remained strong, and the severe cuts to social housing will ensure that demand continues to rise and bolster rents for the foreseeable future.
"Over the long-term, capital gains will contribute towards a healthy profit, but it is the rental cheque that pays the mortgage each month and should be an overriding factor in any investment decision.”
