Rents fall for first time in 11 months

Rents fell for the first time since January 2010, according to the latest Buy-to-Let Index from LSL Property Services plc.

Related topics:  Specialist Lending
Millie Dyson
21st January 2011
Specialist Lending cash coins increase grow money growth
In December, the average UK rent dropped by 1.2% to £684 per month – the lowest average since July 2010. Despite the decrease, rents in December were 3.8% higher that a year ago. The average yield fell slightly to 4.9% in December, the first drop since January 2010, as rents declined at a faster pace than rental property values.

Rents fell fastest in Wales, down 2.6%, while the average rents in the south east and London decreased by 2.5% and 2.3% respectively. However, rents did drop in all regions of the UK. The west midlands and south west saw rents rise by 2.2% and 1.7%, while there were smaller increases in the east midlands and north east.

David Brown, commercial director of LSL Property Services plc comments:

“December is traditionally a slower month for the rental market. Many prospective tenants are either away from home, or prioritise Christmas spending over budgeting to move. This year, the added arctic weather temporarily dampened demand, deterring many renters from hitting the streets and viewing properties.

“But the recent slowdown in rents is down to landlords’ pricing strategies. Landlords offering properties during the holiday season often lower the asking rent to avoid a costly void period. If a landlord cuts the rental price by 5% to fill a property immediately, he will save £275 over the year rather than seeing their property vacant for the duration of the month.

"Nevertheless, with the supply of mortgage finance to both first-time buyers and would-be landlords still constrained, we are likely to see rents re-start their upwards march before the spring.”  

Following a steady fall in property prices over the past three months, the total annual return on a property has dropped to 7% in December – the lowest return since November 2009. This is now the equivalent to £11,431 - £7,332 in rent, and £4,099 in capital gains.

If property prices continue to decline at the same rate of the last quarter, an investor entering the market now could expect to make a total annual return of £3,259 per rental property   - equivalent to £8,211 in rent and capital losses of £4,953.

Brown continues:

“Landlords have seen an end to the post-crunch bounce-back in annual returns, and must view their portfolios as long-term investments. As the months of strong house price inflation fall by the wayside, the prospects for short-terms gain are slender. But with rents remaining historically very high, and tenant demand set to increase, buy-to-let provides very good investment prospects over the long-term.”

The Christmas period had a negative impact on tenant finances. 11.7% of all UK rent was unpaid or late by the end of December, rising from 9.7% in the previous month. Unpaid rent totalled £276m across the UK in December, the highest total since December 2009.

Brown concludes:

“The Christmas break has taken its toll on tenant finances. Many tenants have felt an additional financial pinch from Christmas spending, while others’ payments have been affected as a result of  vacations over the holiday. This rapid surge is a seasonal phenomenon, but tenants have been under steady pressure in recent months.

"Arrears have been rising since October as public sector spending cuts start to bite in many areas of the country. With unemployment set to increase this year, and rents likely to rise once more in the spring, more tenants will be at risk of falling behind with rent payments.”    

Paul Jardine, director of Templeton LPA, comments:

“Tenant finances were hit hard over the Christmas period. Many renters’ monthly budgets were placed under stress by festive expenditure, and the amount of rent in arrears by the end of the month was up by 21% compared to November.

"But this is not just a seasonal occurrence. Arrears have risen for two months in a row, and underlying conditions suggest tenant arrears will become a significant concern for many landlords in 2011. Thousands of tenants are already under pressure from historically high rents.

"And with inflation showing no signs of slowing, and government spending cuts starting to push up unemployment, many tenants will see their finances squeezed even further and landlords must be vigilant to ensure that they themselves do not begin to fall behind with mortgage payments as a result.“
More like this
Latest from Property Reporter
Latest from Protection Reporter
CLOSE
Subscribe
to our newsletter

Join a community of over 30,000 intermediaries and keep up-to-date with industry news and upcoming events via our newsletter.