For the first time in eight months rents have fallen on a monthly basis, according to the latest Buy-to-Let Index from lettings agent networks Your Move and Reeds Rains.
Residential rents across England and Wales have fallen to a new average of £768 per month in November. This follows the usual seasonal trend as landlords keen not to have vacant property over the colder months reduce rents to attract tenants.
This is the first time rents have fallen on a monthly basis in eight months, dropping by 0.2% between October and November 2014.
Despite this seasonal slowdown, rents have risen more quickly than inflation on an annual basis.
Compared to November 2013, the average rent across England & Wales has now risen by 2.0%, or 1.0% in real terms.
David Newnes, director of estate agents Reeds Rains and Your Move, said: “Not only are wages higher than a year ago and wider inflation dropping rapidly, but now rent rises are cooling once again too. For those tenants still reeling after half a decade of financial pressure, a more affordable rental market is another welcome boost.”
Five out of 10 regions have seen lower rents in November than in October this year. Leading this trend is the South East, with a 2.1% drop, followed by a 1.2% month-on-month fall for the North West, then the North East where rents are 0.6% lower than in October 2014.
By contrast, the East Midlands has defied the overall trend, seeing rents increase by 1.7% between October and November. This monthly change is four times faster than experienced in both London and the neighbouring East of England – both of which saw rents rise 0.4% on a monthly basis.
Despite monthly dips, rents in eight out of ten regions remain higher than in November 2013, with one other region seeing no significant change.
Far above the overall average, three neighbouring regions stand out on an annual basis. Rents in the East of England have grown by 6.7% since November 2013. This is followed by 5.5% in the East Midlands and 3.9% in the West Midlands.
At the other end of the spectrum, rents in the South West are now 0.2% lower than in November 2013, the only region to see a fall – while the North West has seen zero rental inflation over the last twelve months.
The gross rental yield on a typical rental property in England and Wales now stands at 5.1% as of November, the same as in October 2014, but a 0.3 percentage point drop from last year, when yields in November 2013 stood at 5.4%.
However, alongside this stability, total returns improved in November. 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 are 12.8% over the twelve months to November. This compares to 12.7% over the twelve months ending October 2014.
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 £21,512 over the last 12 months. Within this figure rental income makes up £8,305 while the average capital gain amounts to £13,207.
Newnes said: “Property prices have shifted to a more sustainable pattern. And that is only a good thing for landlords, just as it is for those looking to buy their own home. Rental income is also steady – with average gross yields hovering just above their long-term 5% average for over a year now. This makes buy-to-let a haven from the insecurity stalking other investments – though careful attention to detail, local knowledge and an eye for cash flow on areas like maintenance are always essential ingredients in realising the best possible return on any investment.”
As of November, 7.5% of all rent was in arrears. This represents a setback on both a monthly and annual basis. In October this figure stood at 6.9%, while November 2013 saw a record-low for tenant arrears with just 6.6% of rent late. However, even after November’s slight deterioration, rent arrears remain considerably lower than in previous years, since peaking at 14.6% in February 2010.
In absolute terms November saw £266 million in outstanding late rent, up from £244 million in October and £228 million in November 2013.
Newnes added: “British households have finally seen wage growth beat inflation for a couple of months in a row. Households now have more to spend than a year ago – and those few extra pounds in the pocket always matter.
“Tumbling unemployment is now complemented by this well-awaited growth in the amount people can earn once they do find a job. And looking back, an improving employment picture has already had an enormous impact on the long-term trend for tenant arrears.
“At this time of year big picture improvements are always tested, as festive financial pressures mount. But as a whole, 2014 has been remarkably positive in terms of the affordability of renting – which is just as positive a note to end the year on for landlords as for tenants themselves.”
