Rents across England and Wales have reached the highest level on record, according to the latest Buy-to-Let Index from Your Move and Reeds Rains.
Average rents now stand at a new record of £816 per month, after rising by 1.6% between August and September.
The pace of change is even clearer on an annual basis – up 6.3% over the last 12 months, from £768 in September 2014.
The report said trends in the private rented sector are increasingly divergent from the official measure of wider inflation. According to the Office for National Statistics consumer prices are by contrast now 0.1% lower than in September 2014.
On a cumulative basis the difference with inflation is starker. Rents are now 24.4% higher than in January 2010, while the index of CPI inflation is just 14.1% higher over the same period. This means rents have risen by 10.3% in real terms since the start of the decade.
Adrian Gill, director of estate agents Reeds Rains and Your Move, said: “Rents are rising strongly in real terms due to the recent acceleration in wages, and the much deeper and longer-term shortage of available properties across the UK – of all tenures.
“Meanwhile, as the price of everyday essentials plateaus and even falls, rents are no longer following the same broad trends. The cost of a place to live has now uncoupled from the cost of living.
“As long as this supply and demand imbalance keeps up, it is hard to see any reversal in the speed of rent rises.
“In many ways housing is more essential than other expenses, so this also raises important questions about the nature of inflation. In this case, reform of the UK housing market and planning system is the only serious way to maintain steadier rental inflation.”
Five out of 10 regions of England & Wales have also witnessed individual rent records in September. Rents in London are rising most rapidly, up 11.6% on an annual basis to a new record of £1,301 per month. The annual change in London has also overtaken the East of England, where rents are now rising marginally more slowly, yet are still up 8.8% over the last 12 months.
Record rents in the East Midlands are now 6.7% higher than 12 months ago, at £603 per month, while the West Midlands has seen its own record of £592 per month, or 5.2% higher than in September 2014.
Meanwhile, South Western rents have risen at a comparable annual rate of 5.5% to stand at a fresh local record of £691 per month. The final region to see a local record, rents in the South East now average £831 per month, but have risen more slowly, by 3.6% since September 2014.
Gill said: “We are in the middle of the busiest time of year in the rental market. September and October are especially important given the student rental market in the autumn and the echoes of the academic year as those in their twenties start new jobs.
“When rents hit a fresh record, it is more likely to happen at this time of year. Yet in 2015 that seasonal trend has been blown out of the water by an unprecedented acceleration.
“Rents have been growing faster than ever – particularly in real terms given inflation has essentially been zero since February. Across the country, towns and cities are seeing demand from local tenants outstrip the supply of properties to let, with inevitable effects on rents. There is little sign yet of this cooling substantially as the autumn progresses.”
The gross yield on a typical rental property in England and Wales (before taking into account factors such as void periods) has risen to 5.2% in September, up from 5.1% in August 2015. This is also higher than the 5.1% gross yield seen a year ago in September 2014.
With slightly faster growth in purchase prices, landlords’ have also seen the value of their properties rise more quickly, boosting total annual returns further. On average, landlords in England and Wales have seen returns of 9.4% over the twelve months ending September 2015 – up from 8.9% in August 2015.
This means that the average landlord in England and Wales has seen a return of £16,952 in absolute terms, before deductions such as maintenance and mortgage payments. Of this, the average capital gain contributed £8,383 while rental income made up £8,569 over the 12 months to September.
Gill said: “Total returns for landlords have cooled since last year, when rapid growth in purchase prices took this towards 15%. Now total returns are more dependent on rental yields rather than the bonus of capital accumulation, which makes this figure more dependable.
“There are also fresh glimmers of a new burst of strength in the purchase market this autumn, which could provide another additional boost for property investors. But landlords should be most positive about rental yields – thanks to such rapid rent rises, yields are actually growing even as property prices pick up too.”
Tenant arrears now represent 8.6% of all rent due, as of September. This is a welcome improvement after a set-back in August took this to 9.9%.
However this level remains worse than a year ago – when in September 2014 just 7.2% of rent due was in arrears of any period.
Gill added: “Rising rents can make the monthly finances harder for some households to juggle – even as the rental market is boosted by a general sense of optimism and higher average earnings.
“So it is excellent to see an improvement in the state of tenants’ finances at a time of record rents and the second fastest annual increases on record.
“At the current pace of rent rises, the average tenant across England and Wales would need to find an extra £13 to pay the rent in September than in August, or £48 more than a year ago. That can leave a hole in the pocket at the end of the month. But on average tenants are more able to afford this than a month ago, which is encouraging news for the state of household earnings – if not necessarily the levels of disposable income after paying such bills.”