July saw rents rise for the fourth month in a row, according to the latest Buy-to-Let Index from LSL Property Services plc.
Rents hit a new record high last month, rising to £725 per month.
According to the index, the average rent in England and Wales in July rose by 1% to £725 per month, surpassing the previous high of £720 pcm in October 2011. The pace of annual rental inflation has also increased, climbing to 2.9% from 2.4% in June.
Rents rose in eight out of 10 regions in England and Wales, when viewed on a monthly basis. Rents in the South East increased the fastest, rising by 2.2%. The West Midlands saw the next largest increase, rising by 1.8%. Rents dropped by 0.4% in both the South West and the East of England. London’s rents hit a new high for the third consecutive month, following a monthly 1% rise to £1,057.
Rents fell on an annual basis in two regions, falling by 1.2% in the South West, and 0.4% in the East Midlands.
The South East saw annual rent inflation up to 4% in July, while rents are still rising fastest on an annual basis in London, with rents in the capital climbing by 4.8%, compared to 4% in June.
“The backlog of frustrated first-time buyers in the private rented sector showed no sign of clearing in July – in fact, it is still growing,” said David Brown, commercial director of LSL Property Services.
“As lending to those without substantial deposits remains depressed, demand for rented accommodation can only go one way in the long-term – providing further upwards momentum for rents. The rental market is also entering its summer peak, as recent graduates and those with new jobs begin to look for new accommodation. With more tenants on the move, alongside long-term underlying demand, fierce competition for properties is enabling landlords to increase rental prices to new highs.”
There was an average total annual return of 4.5% on a rental property in July. This represents an average return of £7,459 with rental income of £7,763 and a capital loss of £305.
LSL Property Services said that if property prices maintain the same trend as the last three months, an average investor in England and Wales could expect to make a total annual return of 8.3% per property over the next 12 months – equivalent to £13,647 per property.
Following the rapid rise in rents, the average yield on a rental property increased to 5.3% in July, its highest level in 2012 and an increase from 5.2% in June.
Brown said: “Rents have returned to record highs, average yields have hit their highest level this year, and returns are healthy, tempting many investors into the market. Banks and Building Societies are tapping into this robust demand, and buy-to-let is the only sector of the mortgage market showing consistent growth, with lending increasing 18% year on year. It’s crucial that lenders continue to increase their commitment to property investors to allow the private rented sector to expand at the rate needed to accommodate the growing number of frustrated would-be buyers.”
Tenant finances deteriorated for a second consecutive month in July, with 9.3% of all rent late or unpaid at the end of the month, an increase from 9.2% in June. In total, unpaid rent amounted to £295m, 2% more than the £289m late or unpaid in the previous month.
Brown added: “With the economy still in recession, and rents climbing to a new record high, the minority of tenants experiencing difficulty in meeting the monthly rent cheque on time is steadily climbing. However, this has not yet fed through into increased mortgage arrears for landlords, with the number of buy-to-let mortgages over three months in arrears actually falling compared to last year.
“Question marks remain over whether there is worse to come from the economy and the labour market. If conditions deteriorate, placing more tenants’ jobs at risk, and rents continue to rise, rental arrears are unlikely to see any sustained long-term drops.”