Compared to January, February’s average rent in England and Wales fell by 0.1%, to £731 per month, according to the latest Buy-to-Let Index from LSL Property Services.
However, due to a smaller monthly drop than a year ago, rents in February showed accelerated annual growth of 3.3%, compared to January when rents were 2.8% higher than a year before.
Despite the monthly drop at a national level, rents grew on a monthly basis in half the regions. The strongest monthly rental inflation was a 1.8% rise in Wales, followed by the North East where rents were 0.9% higher than in January. London’s rents also returned to growth – rising by 0.5%. The fastest falls were in the North West, at 1.3%, followed by a 1.1% drop in the East of England and a monthly fall of 0.7% in the South West.
Only one region saw rents fall on an annual basis; the average rent in the South West is now 1.2% less than a year ago. Rents in London showed by far the fastest annual growth, rising by 6.2% – or £64. The South East saw the next biggest year-on-year rise, of 3.3%, while in Wales rents were 2.9% higher than last February.
David Brown, commercial director of LSL Property Services, said: “The rental market hasn’t yet burst into life, but we’re seeing more vitality than last year’s timid February market, when tenant demand was impacted by the rush to buy homes before the stamp duty deadline. However, this February has also seen a more vibrant sales market reduce the strain on the private rented sector during its sluggish off-peak season.
“While a modest increase in supply has had an effect too, in the longer-term, the supply of rental homes will have to increase considerably to prevent monthly rent rises when the rental market re-enters its traditional peak season.”
The total annual return on a rental property rose to 6.2% in February. This represents an average return of £10,144 with rental income of £7,622 and a capital gain of £2,522. The average yield on a rental property was 5.3% in February, compared to 5.2% in the same month last year.
If rental property prices maintain the same trend as the last three months, the average investor in England and Wales could expect to make a total annual return of 12.5% per property over the next 12 months – equivalent to £20,880 per property, LSL said.
Brown added: “The strengthening of the house sales market has had a positive impact on rented property values. Now, alongside faster annual growth in rents, the expected total return looks even more attractive for landlords. Most importantly, low mortgage rates have widened the gap between monthly payments and rental income even further.
“In the wake of the base rate decision last week, and after recent speculation that Bank rates could even go negative, mortgage rate rises seem unlikely in the near future. For landlords, the mortgage market looks set to continue providing a platform for profitable investment, especially those with more equity to put down.”
The total amount of rent late or unpaid recovered to levels not seen since November. Total arrears in February were £248 million, down from £269 million in January. This equates to 7.4% of all rent across England and Wales, compared to 8.1% of all rent in January.
“After the festive stretch, households have now managed to rein in their finances,” said Brown.
“The return to November levels confirms this was a temporary issue. But previous improvement was an uphill march against inflation. As the year progresses, and in the longer-term, it will be the trajectory of the wider cost of living and wages that will determine the more fundamental ability of tenants to pay their rent.”