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Peak letting season sees rents hit all time high

Date online: 19/09/2014

The average residential rent across England and Wales is now £761 per month. This is £3 higher than the previous record £758 set in October 2013.

On a monthly basis August rents are on average 1.1% higher than was seen in July – or an increase of £8.

This leaves monthly rents 2.4% higher than a year ago, when in August 2013 average monthly rents previously stood at £743. In absolute terms this annual growth represents an increase of £15.

David Brown, commercial director of LSL Property Services, comments: “Autumn is when more people move to take up new opportunities, to build new careers and to start new chapters.  That is what the rental market is all about for many people by providing flexibility and it’s what it does well – at a cost that’s risen in line with inflation for at least half a decade.

No year is the same, and already 2014 has been like no other.  The reawakening of mortgage lending startled the property market into a new spring of life earlier in the year.  The benefits have been felt across the board, not just for first-time buyers but for tenants too.  Investment means rents are now only 1% higher in real terms than at the start of 2010.

Scotland’s date with destiny will be on people’s minds today.  But amidst the national soul-searching in the wake of the vote, politicians on both sides of the border will now be returning to the more mundane and practical questions of making the best policy decisions.  In the housing market, this means a debate about tenant fees.

Banning tenant fees in Scotland pushed up rents by £312 per year – or multiple times what a tenant would have paid at the start of a tenancy.  Across every corner of Britain this should serve as a lesson in fully thought through policy making.”

Rents by region

Rents in seven out of ten regions of England & Wales are higher than a year ago. This is led by the South West, where rents are up 3.5% on an annual basis, followed by the South East at 3.4%, and the North West with a 3.3% annual rise.

London was not in the top three, with annual rent rises of only 3.0%.

Rents in the North East are in fact 1.6% lower than a year ago, while the West Midlands and Wales experienced annual falls of 0.4% and 0.1% respectively.

On a monthly basis rents in the North East have by contrast matched London, with both seeing a 1.5% increase in rents since July. Only rents in the South East and the South West of England grew faster on a monthly basis, up 1.7% from July.

In total three regions are now seeing lower rents than in July. Alongside annual falls, rents in Wales and the West Midlands are lower on a monthly basis by 0.3% and 0.5%. However, the fastest monthly dip was in the East Midlands with rents down 1.1%.

Yields and Returns

As of August gross yields on the typical rental property in England and Wales stand at 5.1%, representing a fall of 0.2 percentage points from one year ago, down from 5.3% in August 2013.

However compared to the previous month gross yields are up slightly from 5.0% seen in July 2014.

Taking into account price growth and void periods between tenants (but before costs such as mortgage repayments or maintenance) total annual returns on an average rental property stand at 12.7% over the twelve months to August. This is up from 6.4% in the year to August 2013, and an increase of 0.6 percentage points since July, when returns were 12.1%.

In absolute terms this means the average landlord in England and Wales has seen a return, before deductions such as mortgage payments and maintenance, of £21,239 in the last twelve months. This is made up of rental income of £8,233 and an average capital gain of £13,006.

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 17.2% over the next year, equivalent to £30,997 per property. 

David Brown comments: “Landlords have benefitted from higher property prices, which is helping portfolios to expand and more homes become available to let.  Gross rental yields are still in line with long-run averages, and rental income is more reliable as personal finances gradually leave the great recession behind them.

Meanwhile, the threat of interest rate rises is being held off by economies in the rest of the world marching to a slower tune.  Landlords are seizing this cocktail of opportunities.  And most critically – when landlords boost profits by adding to the supply of homes, this keeps rent rises lower, and helps pass some of the benefits of these factors onto tenants.”

Tenant Finances

Tenant finances experienced a setback last month; with the proportion of late rent standing at 8.0% in August, up from 7.3% in July. In absolute terms this represents an increase of £27 million of rent in arrears.

On an annual basis the setback is less severe, up 0.2 percentage points compared with August 2013 when the equivalent figure was 7.8%. In absolute terms this is an increase of £16 million, leaving the total amount of unpaid rent across England and Wales at £279 million.

David Brown concludes: “Dropping unemployment has the greatest power to change things when it comes to tenant arrears, and this has gone rapidly in the right direction for some time.  To maintain progress, tenants are relying on the labour market to keep adding jobs.

In addition, while rent rises have been modest, a lack of significant earnings growth has not helped levels of late rent.  Now that the economy is starting to shift through the gears many tenants will be starting to hope for wage rises.  If that happens soon then the rental market will get an extra boost – as tenants will be less likely to find themselves stretched too thin in the final week before pay day.”

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