the latest Buy-to-Let Index from Your Move and Reeds Rains has reported that rents in England and Wales reached yet another record high in July, driven to £804 on the back of the fastest month-on-month price increase seen since 2009.
On a monthly basis, rents across England and Wales rose by 1.9% in July, up from £789 the previous month in the fastest monthly rise seen since records began in 2009.
Compared to July 2014, when the average rent in England and Wales stood at £753, tenants in July 2015 are paying 6.8% more – also the largest annual rise on record.
The firms said this record-breaking rise has been driven by higher rents in Yorkshire & the Humber as well consistently strong rises across southern regions.
Adrian Gill, director of estate agents Reeds Rains and Your Move, said: “Just when you think the rental market is accelerating at full throttle, it finds a way to shift into a higher gear. We’re seeing rent rises manage to hit record-breaking speeds on both monthly and yearly timeframes as far back as our data can go.
“But rents are just a small part of the larger economic machine. The fact that they’re purring along at higher-than-ever speeds is a sign that the rest of the economy is picking up. An engine can’t use fuel it doesn’t have. These rent rises are a reflection of heavier wage packets being fed back into economy now that the rust from the recession has been cleaned off the cogs.
“But just because a car can break speed limits doesn’t mean it should. We’re faced with a real problem – homes have become a scarce commodity. As house prices and mortgage deposits continue to eat up a larger and larger proportion of wages, appetite for rental properties has begun to outstrip the available stock. This has driven rents up even faster than house prices.
“A clear and concerted effort towards new-build properties is the most sensible way to address this issue. It boils down to supply and demand. However, it’s not the only possible response. The government could also ensure that we’re making the most efficient use of our small supply of homes – for instance by doing more to make it easier for people to downsize their properties when they want to.”
Four of the 10 regions of England and Wales saw record rent peaks in July – London, Yorkshire & the Humber, and the East and West Midlands – while every region saw increases compared to last year.
Stronger than usual improvements in the West Midlands saw rents rise 3.6% over the 12 months to July 2015, bringing the average rent in the region up to £583. It’s a similar story in the East Midlands, with a 2.5% annual increase carrying rents up to £584. Yorkshire & the Humber, by comparison, edged its way to a new record with a 2.0% year-on-year increase to £582 on average.
Rents grew 12.0% on an annual basis in the East of England, to stand at £838 in July. Though it’s second only to London (+12.1%) in terms of the speed of the 12-month improvement, this is actually the first time in 15 months that the rate of year-on-year rent increases has not accelerated.
Only two regions saw falling rents on a monthly basis: a 0.1% month-on-month drop in Wales and the East of England. Though rents are at a peak, Yorkshire and the Humber saw a modest 0.3% monthly increase.
London took the lead with a 3.3% month-on-month rental increase. However, surprise surges came from the South East (+3.3%), The North West (+1.4%) and the North East (+1.3%), as the rental market in the north starts to build some of the momentum seen down south.
Gill said: “With the East showing accelerating rental growth for well over a year, the area has now paused to let off a little steam. It’s interesting to see that the South East has jumped in to take up the slack, neck and neck with London jostling for pole position in monthly rent rises. It shows the effect that the high-density capital is having on the surrounding areas as people move further out in search of affordable homes.
“The Midlands, too, are starting to show some serious purpose as the workhorse of the East eases back. As investment in the Northern Powerhouse starts to mature, we’re going to see more and more people looking for the flexibility offered by rental accommodation as they move in search of the jobs springing up outside of London – especially in high-growth areas like Yorkshire.”
The gross yield on a typical rental property in England and Wales (before taking into account factors such as void periods) rose to 5.2% in July 2015, the first substantial increase seen since March. This compares to 5.1% in June 2015 and 5.0% in July 2014.
However, total annual returns fell in July. On average, landlords in England and Wales have seen returns of 8.7% over the year ending July 2015 – down significantly from 10.0% in June and 12.5% in the year ending July 2014.
This means that the average landlord in England and Wales has seen a return of £15,632 in absolute terms, before deductions such as maintenance and mortgage payments. Of this, the average capital gain contributed £7,188 while rental income made up £8,444 over the twelve months to July.
Gill said: “House price growth is easing back – and this has had an effect on total annual returns. However, rental yields are perking up to compensate. The mortgage market has stabilized after a post-election bounce, and the current political stability makes for clear sailing in the buy-to-let market despite the chronic housing shortage. With mortgage repayment rates so low and returns still remarkably enticing, there’s rarely been a better time to get invest in rental properties.”
Tenant arrears made up 8.4% of all rent payable in July 2015, down from 8.7% in June 2015 but still above 7.3% in July 2014.
Gill added: “July has seen us head back down the path towards greater financial security. It’s true that any rise in arrears is a setback, but the greater trend is clearly towards tenants in better control of their finances.
“The question isn’t if we’re able to improve the proportion of rent that falls into arrears, but how quickly we can improve it.”