August rents second highest on record

Nia Williams

September 20, 2013

The average rent in England and Wales reached £743 per month in August after a monthly increase of 0.7%.

This acceleration in August compares to July when rental inflation was much lower, at 0.2% month on month.

On an annual basis, this leaves rents 1.3% higher than a year ago and only £1 behind the all-time record high set in October 2012.

Meanwhile, the pace of new lettings accelerated in August as the number of new tenancies across England and Wales increased by 8.8% compared to July.

On an annual basis, there were 13.7% more new tenants in August than in August 2012.

Eight out of ten regions saw higher rents in August. Rents in the South East rose the fastest of all, up 2.0%, while Welsh rents were 1.0% higher.

The third fastest monthly rise was in the North West, with rents rising 0.9% compared to July. By contrast, rents in the North East fell by 0.8% in August, while the average rent in the East Midlands was 0.3% cheaper than the previous month.

On an annual basis, five regions out of ten have seen rents rise in the past twelve months. By a significant margin, London saw the fastest annual increases, with rents up 4.8% in the past year. This was followed by Wales, where rents are 2.3% higher than twelve months ago, while the East Midlands saw the third largest annual rise, with rents up 0.9% since August 2012.

By sharp contrast rents in Yorkshire and the Humber are 1.6% lower than in August 2012, followed closely by a 1.5% annual fall in the North West, while rents in August were 1.0% lower than a year ago in the West Midlands.

David Brown, commercial director of LSL Property Services, said: “The summer saw a step-change for first time buyers. Better availability of finance has allowed some households to leave the rental market. And rents certainly felt the short-term impact of that.

“But releasing a blast of that pent-up pressure to buy a home is unlikely to change the long-term trend to renting. Although government schemes are helping, buying a first home is still extremely hard on the back of low salary growth.

“As hundreds of thousands of new households look for homes, it’s increasingly private renting that’s absorbed the pressure. Autumn brings the seasonal peak for the rental market, in part due to the spike caused by student renters, and the sheer volume of lettings activity shows demand this year is as strong as ever.”

Gross yields on a typical rental property remained steady at 5.3% in August. However, taking into account void periods between tenants and capital accumulation, total annual returns on an average rental property rose to 6.2% in August, compared to 5.6% in July. In absolute terms this represents an average return of £10,207, with rental income of £8,051 and a capital gain of £2,156.

If rental property prices continue to rise at the same pace as over the last three months – which with renewed housing market activity has been at higher levels – LSL estimates the average buy-to-let investor in England and Wales could expect to make a total annual return of 13.1% over the next 12 months, equivalent to £22,065 per property.

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