Rents rose for the first time in three months in April, according to the latest Buy-to-Let Index from LSL Property Services.
Last month, the average rent in England and Wales rose by 0.5% to £709 per month. Despite the monthly rise, the rate of annual increase steadied with rents 2.4% higher than a year ago, compared to 2.7% in March.
Rents rose in seven regions of England and Wales on a monthly basis, with the North West and the East of England seeing the largest increases of 1.3% and 1.1% respectively. London’s rents rose by 0.7% in April, with the average standing at £1,032 pcm, 46% higher than the national average. Rents fell the most in Wales, where they decreased by 1.3% and the West Midlands, where they fell by 0.6% compared to March.
The largest annual rises were seen in London, where rents rose 4.5% in April. The next fastest growth was in the East of England and the South East where rents rose by 2.9% and 2.7% respectively. On an annual basis, rents have fallen in one region, dropping by 1.7% in the East Midlands.
David Brown, commercial director of LSL Property Services, said: “After absorbing the impact of the stamp-duty deadline on tenant demand, the rental market began to heat up in April. As fewer tenants rushed to leave the sector, competition for rental accommodation intensified, and rents rose correspondingly.
“Lenders are retreating from higher loan-to-value lending in light of rising funding costs and the economic outlook. On top of this, first-time buyers now must save for longer to pay for stamp duty – in addition to finding substantial deposits – making house purchase a more distant prospect for many tenants. As a result, tenant demand will only strengthen, providing impetus for rental inflation in the long-term.
“That said, future rises are likely to be tempered by affordability concerns, with landlords weighing up the prospect of empty properties or tenant arrears against significant rent hikes.”
Weakening house prices in April led to the total annual return on a rental property to dip to 3.4%, although they were 2.9% a year ago. This represents an average return of £5,589, with rental income of £7,624 and a capital loss of £2,035. The average yield on a rental property was 5.2%, compared to 5% a year ago.
Brown added: “Weakening property prices in the aftermath of the end of the stamp duty rush contributed to a dip in overall returns, with capital losses offsetting healthy growth in rental income. But the picture is varied across the country. For instance, steeper rental inflation and robust house prices in London means that the average landlord in the capital has seen returns of £11,215 in the last year in cash terms – double the national average.
“However it is the consistently strong yields – which compare favourably to savings rates and average dividend yields – that are drawing long-term investors to the market.”