Rent rises across England and Wales have slowed to their lowest annual rate in over four years, according to the latest Buy-to-Let Index from LSL Property Services.
As of March, rents across England and Wales are now just 0.9% higher than 12 months ago. Rents have not increased as slowly since they grew by 0.4% in the 12 months ending January 2010, making the latest annual rent rises the slowest for over four years.
In absolute terms this means the average rent in England and Wales is only £6 higher than a year ago, currently standing at £741 per month compared to £735 in March 2013.
On a monthly basis, rents fell by 0.2% between February and March. This leaves rents in England and Wales approximately £1 lower than in February.
David Brown (pictured), commercial director of LSL Property Services, said: “Mortgage lending is recovering steadily – and the impact is becoming clear. This year is seeing access improve across all areas of the property market, and that now includes private renting.
“A flow of investment from landlords has increased supply of homes to let, supported by historic low mortgage rates and significant growth in the number of buy-to-let loans. At the same time more first time buyers are starting to balance the many thousands of new tenants entering the rental market. And this is slowing demand a little. The result is a private rented sector where supply and demand are more aligned than for many years. More mortgage lending is good for tenants too.”
Rents in five out of 10 regions are higher than in March 2013, led by the South West with 5.2% annual rent rises. This is followed by 2.3% annual growth in the North West and 1.4% annual rent rises in the South East.
Of the five regions where rents are now lower than a year ago, the East of England has seen the sharpest fall, down by 3.6% over the course of twelve months. Wales has seen rents fall 2.0% in the past twelve months, while rents in the West Midlands are 1.2% lower than a year ago.
Meanwhile, falling rents on a monthly basis were led by lower rents in London and the South East. London and the South East both saw rents fall by 0.4% between February and March. This is in line with, and broadly powered, the monthly fall across England and Wales. The only other region contributing to the monthly fall was the East of England, where rents were 0.1% lower in March than in February.
By contrast, half of the ten regions saw slightly higher rents in March than in February, with rents up by 0.3% in the West Midlands, followed by 0.1% monthly rises in the East Midlands, Yorkshire & Humber, North East and South West.
Brown said: “Improved mortgage lending is having the most pronounced effect on the buy to let market in places where monthly rents are highest. In fact, only London, the South East and East of England have now seen rents fall from historically high levels on a monthly basis. This will have a positive effect on tenant finances in these areas.”
Gross yields on a typical rental property have seen no significant change on a monthly basis, standing at 5.1% in March, the same as was recorded in February. However, yields have fallen on an annual basis compared to March 2013, when the average gross yield on a rental property in England and Wales was 5.4%. This fall in yields on an annual basis is due to increases in property values.
However, taking into account this price growth, plus improved void periods between tenants, total annual returns on the average rental property have risen to 12.0% in the year to February. This compares to just 5.1% in March 2013 – and represents the largest recorded total annual returns for landlords since June 2010, when this figure stood at 12.5%.
In absolute terms this means the average landlord in England and Wales has seen a return of £19,647 in the last 12 months, with rental income of £8,038 and capital gain of £11,609.
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 17.5% over the next 12 months, equivalent to £30,600 per property.
Brown said: “Rental income is more reliable than ever before – with tenant arrears at half the level seen at the peak of the financial crisis. At the same time, gross yields are almost one whole percentage point above the lows of 2008. Capital accumulation is providing a bonus for landlords and adding to total returns, yet this is underpinned by solid rental income.”
The financial situation of tenants is significantly better than at the same point last year. As of March the total amount of late rent across England and Wales stands at £269 million, down from £284 in March 2013. As a proportion, such tenant arrears now represent 7.8% of all rent, compared to 8.5% a year ago.
This is despite a slight set-back on a monthly basis. Previously, in February, late rent had reached the second lowest level on record, when a total of £235 million represented just 6.9% of all rent.
Brown added: “We expect this trend to continue over the months ahead as wages finally pick up and wider inflation is brought into line. There will always be a chance of minor setbacks. And household budgets have a long way to go – but progress is being made. Less strain on tenant finances makes for a healthier rental market.”
