David Brown, commercial director of LSL Property Services, comments:
“As the summer turns to early autumn, the rental market is approaching its busiest period – yet rent rises remain modest.
“Tenants looking to rent a new property this month still need to budget the same as they would have in November. At a time when the UK is facing a serious shortage of homes, and with purchase prices rising steadily, that is an immense achievement for the private rented sector.
“Rents have tracked inflation for many years – and as of July remain down 0.2% in real terms since the start of 2010. This is testament to serious improvements in the supply of new homes to let, thanks to investment by landlords. If that investment keeps flowing, and the right incentives for new landlords remain, this positive trend should continue.”
As of July the gross yield on a typical rental property in England and Wales stands at 5.1%. This represents a fall of 0.2 percentage points since July 2013 when the gross yield on a rental property averaged 5.3%. However, yields are steady on a monthly basis, at 5.1% over the past six months. .
Taking into account price growth alongside void periods between tenants, total annual returns on an average rental property stand at 10.3% in the twelve months to July. This is up from 6.1% in the year to July 2013, but represents a moderation on a monthly basis, down from 11.3% in the year to June 2014.
In absolute terms this means the average landlord in England and Wales has seen a return, before any mortgage payments or other deductions, of £17,307 in the last twelve months. This is made up of rental income of £8,168 and an average capital gain of £9,140.
Looking ahead, 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 8.5% over the next year, equivalent to £15,050 per property.
David Brown comments:
“Steadier price growth is good news for landlords aiming to minimise volatility in the value of their properties, while hoping for gradual and sustainable rises. Such capital accumulation will vary alongside the purchase market.
“Most encouraging for landlords considering future investments will be the stability of rental yields over the last six months. The second half of 2013 saw yields dip back from record highs towards the long-run average of 5%. But so far this year we’ve witnessed an astounding consistency from gross yields. This indicates a healthy relationship between property values and rental income – though landlords must always pay attention to the all-important local factors that lie beneath this average.
“Looking ahead, the biggest risk for the health of the private rented sector is unconstructive government regulation. If this successful industry becomes a political football in the run-up to a general election then landlords will be frightened away from the market, and tenants would be worse off. However if political ideals can work in tandem with practical considerations, then the future is bright.”
