Annual rent rises across England and Wales have accelerated, according to the latest Buy-to-Let Index from LSL Property Services.
In February, the average rent across England and Wales was now 1.6% higher than 12 months ago, currently standing at £743 per month.
This is the fastest annual increase since November 2013, and compares with a year-on-year rise of 1.4% in January this year.
On a monthly basis, rents increased by 0.1% (or approximately £1) between January and February. This represents the first month-on-month increase in residential rents since October 2013.
David Brown, commercial director of LSL Property Services, said: “Property to rent remains in high demand. Despite great improvements in the prospects of many first-time buyers, there are still millions of households who rely on a healthy private rented sector for their homes.
“February’s annual increase remains below the rate of wider inflation. However, this latest uptick and the high level of demand in the lettings market emphasise the importance of ongoing investment. Landlords have invested heavily in expanding their portfolios and need to continue to do so to keep pace with demand from tenants.”
Seven out of ten regions saw rents rise on a monthly basis between January and February, in line with the monthly increase across England and Wales as a whole.
The sharpest monthly rises were seen in Yorkshire & the Humber and the West Midlands, where in both regions rents rose by 1.2% on a monthly basis. The next fastest monthly rise was in Wales, with a 1.0% increase, while the East Midlands saw rents rise 0.6% between January and February.
Of the three regions to see a monthly fall in rents, the fastest drop was in the South East, down by 1.5% since January. Meanwhile rents fell by 0.6% on a monthly basis in the East of England, and by 0.1% in the North West.
A majority of regions also saw higher rents on an annual basis. The South West saw the quickest rise, up 4.7% from February 2013. This was followed by 3.3% in London and annual rent increase of 2.2% in the North West.
By contrast, rents in the East of England now average 3.1% less than a year ago, followed by a 2.3% annual drop for Wales and a 1.9% annual fall in the West Midlands.
Brown said: “Across the UK there has always been a huge level of variation between different local markets. But in the last year some of these differences have become more apparent as the property market has witnessed such a rapid shake-up and improvement. Those looking to rent, or to let a property should look into the intricacies of their local market, which can have at least as much bearing on the level of rent as the property itself.”
Gross yields on a typical rental property remained steady on a monthly basis, standing at 5.2% in February, the same as in January 2014. However, yields have fallen slightly on an annual basis compared to February 2013, when the average gross yield on a rental property in England and Wales stood at 5.3%. This annual fall in yields is due to higher property values.
However, taking into account the same strengthening capital accumulation, plus slightly improved void periods between tenants, total annual returns on an average rental property rose to 9.7% in the year to February. This compares to 9.0% in January, and just 5.4% in February 2013, with the difference due to much faster house price increases. In absolute terms this represents an average return of £16,029, with rental income of £7,921 and capital gain of £8,108.
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 15.3% over the next 12 months, equivalent to £26,400 per property.
Brown added: “Landlords are experiencing a very good mix of total returns. Rents are rising steadily, while property values are growing at a healthy pace. Moreover the cost of finance is at a record low. Even the fundamental shortage of property in the UK may gradually improve in the medium term, as new home starts pick up this year. Looking ahead, the private rented sector is set to enjoy both solid demand from tenants, and the benefits of a new lease of life for the property market as a whole.”
