Arrears drop £6m as rent rises slow

Sam Cordon

June 21, 2013

The 0.1% monthly increase took the average rent in England and Wales to £737 per month while the annual increase puts rents up 3.5% making May the third highest level on record.

The number of new lettings in May benefited from better tenant finances and slower rent rises, contributing to a 3% increase in the number of new tenants, compared to April. On an annual basis there were 5% more new tenants than in May 2012.

David Newnes, director of LSL Property Services, said: “Despite a strong increase in new tenants rents rose more slowly than other household costs. But that demand would have been even stronger had it not been for a recent spurt in the number of first-time buyers.

“Looking further ahead, sustaining the increase in new buyers will depend on how many tenants are able to build big enough deposits to get a mortgage. With wage growth so weak compared to inflation and house price growth, it looks like deposits will become less affordable which will keep demand for rented accommodation high.

“The rental market has demonstrated its flexibility in May but will need to continue to adapt to deal with the long-term change towards levels of demand unprecedented in recent decades. May’s figures are consistent with our longer-term predictions that private renting will become a more and more vital aspect of the economy.”

Six out of 10 regions saw rents rise in May. The fastest increases were in the East Midlands where rents were up 0.4% followed by the North West with a 0.3% monthly rise.

London, the South East and the East of England all saw rents 0.2% higher than the month before.

However rents in Wales fell by 0.7% followed by a 0.4% drop in the West Midlands while rents in Yorkshire and the Humber are down by 0.3% compared to April.

On an annual basis there remains significant variation in the rate of rent rises.

Once again, London dominated, with rents 7.2% higher than a year ago. Next in line was Wales where rents were up 5.2% since May last year followed by the North East with annual rent rises of 4.0%.

In nine out of 10 regions rents were higher than a year ago with only the South West seeing no change since May 2012.

Due to slower capital accumulation the total annual return on a rental property fell to 5.3% in May.

This represented an average return of £8,747 with rental income of £7,797 and a capital gain of £950. The average yield on a rental property was unchanged on a monthly basis, at 5.3% in May, 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 6.2% per property over the next 12 months – equivalent to £10,316 per property.

Newnes said: “With the real heat of the summer market just around the corner a slightly cooler market in late spring is likely only to be a mild interlude. But despite the very temporary reasons last month will have been very welcome for tenants and landlords alike with more lettings activity going hand-in-hand with more affordable rent rises.

“A slower monthly increase has had no significant effect on landlords’ annual returns bolstered further by the better financial position of tenants.”

The total amount of rent late or unpaid has improved by £6m in one month. Total arrears in May were £276m compared to £282m in April. This equates to 8.2% of all rent across England and Wales compared to 8.4% of all rent in April.

Newnes said: “Tenants are gradually paying down rental arrears – part of a broader shift where consumers are focusing on deleveraging and shedding their bad debts.

“It’s a clear long-term trend despite the occasional more difficult month. Landlords will be equally happy that tenants facing financial trouble have found an opportunity to pay down arrears.

“But while this month will come as a relief for everyone in the longer-run it’s still unemployment levels and wage growth which matter the most to the affordability of rent. Those factors will depend on the wider economic recovery and the latest jump in inflation will make that long term struggle all the more gradual.”

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