March saw the average rent in England and Wales rise by 0.5%, to £735 per month, compared to the previous month, according to the latest Buy-to-Let Index from LSL Property Services plc.
Rents last month reversed what was a four-month downward trend.
The return to growth leaves rents in March 4.2% higher than a year ago, compared to 3.3% annual growth in February.
Rents were higher on a monthly basis in six out of 10 regions. The strongest growth was in London where a 1.3% monthly rise took rents in the capital to a fresh record, averaging £1,106 per month.
This was followed by the North East where rents grew 0.9% compared to February, while in Yorkshire and the Humber rents increased by 0.6% on a monthly basis. However, rents dropped the fastest in the South West, falling 0.5%, followed by Wales where rents dropped by 0.4% in a month.
Nine out of 10 regions saw rents rise on an annual basis. London experienced by far the fastest annual increase, leaving rents in the capital 7.9% (£81) more expensive than a year ago. Wales and the East Midlands both saw annual rental inflation of 3.9%, while rents in the North East are now 3% higher than in March 2012. The only exception to annual increases was the South West, where rents are still down marginally, dropping 0.2% over the last year.
David Brown, commercial director of LSL Property Services, said that Winter staged a last-ditch counter offensive in March, but in spite of the unseasonal weather the rental market has gained some ground.
He said: “Over the next few months it looks likely the spring bounce will continue. Of course, the regional picture remains more complicated. This month witnessed even more divergence between London and the rest of the country. But the overall picture is clear. With only modest improvements in the UK’s housing supply, rents will keep being forced upwards.”
The total annual return on a rental property rose to 6.3% in March. This represents an average return of £10,329 with rental income of £7,751 and a capital gain of £2,578. The average yield on a rental property was 5.3% in March, 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 10.9% per property over the next 12 months – equivalent to £18,173 per property.
Brown said: “Landlords shouldn’t count their spring chickens yet, and the hunt for a reliable yield will be as varied and complex as ever. Especially given improvements in the purchase market.
“First-time buyers are seeing progress on mortgage availability, and many will have welcomed the new Help-to-Buy initiatives in March’s budget. When it comes to buy-to-let, there remain plenty of reasons to be cautious, but it will be tempting to think of March as a turning point for rents.
“For most people in need of somewhere to live, the private rented sector continues to be a more affordable option. Lenders are still wary about their balance sheets, resulting in new lending to first time buyers being matched by mortgages with much more equity, such as buy-to-let. These loans are also at very low rates, and alongside newly buoyant rents, the availability of this credit will make many landlords tempted to expand their portfolios.”
The total amount of rent late or unpaid has worsened to levels not seen since December. Total arrears in March were £284m, rising £36m from £248m in February. This equates to 8.5% of all rent across England and Wales, compared to 7.4% of all rent in February.
Brown said: “Sadly, more people seem to be struggling again. After an initial recovery from December’s financial woes, March looks like an unfortunate regression, and it highlights just how strained many budgets are. Economists are forecasting some improvements in real earnings this year, but that will take time, and won’t be universal.
“This month’s renewed dilemma demonstrates even further how landlords need to seek expert advice, and work together with tenants when things start to go wrong. An honest and imaginative approach can provide the best solution, but communication channels must always be kept open, and potential problems voiced at the earliest opportunity.”