In September, UK rents rose to £689, surpassing those seen in August 2008, the previous market peak. The average UK rent is now 3.1% higher than the same time last year, following eight consecutive months of rises.
The average yield remained stable at 4.9% in September, as rising rents were matched by modest house price growth in the past three months.
David Brown, commercial director of LSL Property Services plc comments:
“Landlords have seen tenant demand continue to hit new heights. The mortgage market remains tight and many buyers simply cannot get the finance to get a foot on the property ladder. And with potential spending cuts on the horizon, and uncertainty over the direction of the economy, many buyers are choosing to remain in rented accommodation for longer – perhaps to wait for house prices to fall.
"As a result, demand for rental accommodation is increasing, and supply is not rising fast enough to match it. This has turned the buy-to-let market into a landlord’s market, and many renters face increasing rental costs while they delay their house purchase.”
The resurgence in rents has been driven by a strong performance from London and the South East in 2010. In September, London rents hit their highest on record. Landlords increased their rents by 1.1% to £972 per month in September. They have risen by 6.8% since January.
Rents in the South East rose by 0.9% in September, while those in the East of England and the West Midlands rose by 1%. The South West and North West reported modest falls.
Brown explains:
“The supply and demand imbalance is particularly severe in the capital and London is emerging as a different market entirely from the rest of the UK. There is an acute lack of affordable housing in London, and would-be buyers cannot meet higher house prices – or get big enough mortgages.
“Traditionally, London is seen as a low-yield market. But this isn’t the case. Despite the strong performance of house prices in the capital in the past year, yields haven’t fallen sharply.
"With rental properties so sought after in the city, landlords have been able to continually hike rents since January and are seeing a yield just 0.1% shy of the UK average. In the last twelve months, the average London landlord would have made an annual total return of nearly £34,000 on a typical rental property.”
The rise in rents means that an investor buying property could now expect a total annual return of 9.2%, the equivalent of £15,592 on a typical rental property . Over the past year, the average UK landlord has made a total annnual return of 10.4%, £16,567.
Although arrears dropped from August, they remained high. Unpaid rent totalled £230m across the UK in September, down from £266.3m in the previous month. Nevertheless, this still was the equivalent of 10% of all rent across the UK remaining unpaid.
David Brown continues:
“Arrears improved slightly this month – a pleasant surprise for property investors. But we don’t expect this trend to continue. Imminent public sector spending cuts are likely to impact upon unemployment levels, and could put more tenants under financial pressure.
“The private rental sector is no longer in recovery – it has reached the heady heights of its peak two years ago, before the housing downturn took its toll on rents. And with rents at a record high, it continues to be a lucrative long-term investment despite the slowdown in house price inflation.
"Mortgage finance is still the main hurdle for investors looking to take advantage of the market. But with lenders like Paragon re-entering the market, there are indications that more affordable products are becoming available for professional landlords - a vital factor in expanding the PRS to meet the UK’s housing needs.”
David Salusbury, Chairman, National Landlords Association, comments:
"The situation isn't the same in every part of the country. While the strongest rent increases have been in the London area, landlords in the South West and North West have experienced a decline in rental income.
"Research by BDRC Continental has shown 58 per cent of landlords did not increase their rent in the last 12 months and a further 12 per cent actually decreased it. The survey also found more than two-thirds of landlords have no plans to increase rents over the next three months.
"The reality facing the sector is one of VAT increases, expected interest rate rises and a current lack of mortgage finance, all of which landlords have to cope with."
