Rents rose for the sixth month in a row in July, to a new record high, according to the latest Buy-to-Let Index from LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.
In July, the average rent in England and Wales rose by 0.6 per cent to £705 per month, surpassing the previous high of £701 in June. With annual inflation at 4.2 per cent, the average rent is now £29 pcm higher than July 2010. The average yield reached 5.2 per cent in July, up from 4.8 per cent a year ago. (LSL Graph 1)
London saw by far the greatest annual rent increase in England and Wales. In July, rents hit a new high of £1,009 per month – an annual increase of 7.1 per cent. The next biggest rises were in the North East where rents increased by 5.5 per cent, and the East and West Midlands, where rents rose by 4.8 per cent. In the last year, average rents have risen in all regions except Wales, where they now are at the same level as July 2010.
On a monthly basis, rents increased fastest in the South East, where they rose 1.7 per cent. In Wales and the East Midlands, they increased by 1.4 per cent compared to June. Rents declined in three regions – the West Midlands, where they fell by 0.6 per cent, Yorkshire & the Humber and the North West, where rents fell by 0.2 per cent and 0.1 per cent respectively. (LSL Graph 2)
David Brown (left), Commercial Director of LSL Property Services, comments, “Rents are on an upward trajectory, and it is unlikely that tenants will gain respite any time soon.
Demand from thousands of frustrated buyers each month is underpinning buoyant competition for rental homes, enabling landlords to increase prices. This is the peak summer season, with more renters on the move, the market will continue to heat up. Such strong demand and high rental incomes has forced lenders to take notice, and more are returning to the sector. As a result of the competition in the buy-to-let market, the range of affordable products is expanding – and lending to investors rose by 21 per cent in the last quarter. Nevertheless, even with squeeze on landlord finance abating, the new supply will not be enough to meet demand from tenants.
“The increasing cost of rental accommodation – alongside the soaring cost of living – is eroding first-time buyers’ ability to save deposits. But first-time renters are also keenly feeling the pinch. As rents climbs, so does the size of the average deposit a new renter must find.
"Thousands of new buyers each year rely on the bank of Mum and Dad to help fund a deposit. However, now it is becoming increasingly commonplace for renters to get parental help to fund their first deposit on a rental home, with the typical one month deposit on a property in London more than £1,000.”
The total annual return on a rental property fell to 1.2 per cent in July as annual declines in rental property prices took their toll. The total annual return is the equivalent of £2,060 - £7,522 in rent, with a capital loss of £5,462. If property values continue on their current trend, a property investor could expect to make a total annual return of 2.5 per cent over the next 12 months – equivalent to £4,093 per property”.
David Brown continues, “Falling property prices are holding back total annual returns and will continue to do so over the short-term. But the vast majority of prospective investors look at longer-term fundamentals such as tenant demand and yields – and these are looking increasingly attractive.”