Lettings market strengthens
LSL Property Services said in England and Wales the average rent rose by 1.2% to £734 per month in August, surpassing July’s record high of £725. Rents climbed by 2.9% compared to August 2011.
Tenants saw rents reach record highs in five regions in August, hitting new peaks in London, the South East, the East of England, the North West and Yorkshire & the Humber.
On a monthly basis, rents rose in eight regions. The South East saw rents climb the fastest for the second month, rising by 2%, while rents in both London and the East of England rose by 1.6%. Rents decreased in Wales and the West Midlands.
London and the South East have seen the fastest rent rises compared to August 2011, with rental inflation at 4.9% and 3.9% respectively. On an annual basis rents fell in two regions, decreasing by 1.9% in the South West, and by 1.8% in Wales.
David Brown, commercial director of LSL Property Services, said: “The rental market is right in the thick of its peak season, and the demand from graduates and those starting new jobs has added a new layer of competition on top of the existing pool of frustrated buyers.
“London and the South East may be the powerhouses of the national rental market, but rent rises haven’t been limited to these areas by any means.
“In fact, rents have hit record highs in five regions as tight mortgage finance criteria and large deposit requirements for new buyers continue to ramp up the pressure on the limited stock of rental homes available.”
Brown said some relief for tenants may be found if the Funding for Lending scheme begins to feed through into greater lending to borrowers with smaller deposits.
But he said any improvement to the first-time buyer mortgage market will need to be significant and sustained to dent rental demand markedly in the long-term.
Landlords saw an average total annual return of 5.3% on a rental property in August, up from 5% in July. This represents an average return of £8,716 with rental income of £7,853 and a capital gain of £863.
If rental 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 9.2% per property over the next 12 months – equivalent to £15,191 per property.
The average yield on a rental property remained steady at 5.3% as slightly higher property prices were matched by higher rents.
Brown said: “The government’s response to the Montague Report recognises the need to expand the supply of rented property, and supporting the building of new rental properties and encouraging institutional investment to the sector marks a step forward.
“However, it’s equally vital that lenders continue to support individual investors, who are being drawn in by the healthy yields, historically low mortgage rates, and strong tenant demand.”
Tenant finances improved for the first time in three months in August, with 9% of all rent late or unpaid at the end of the month, a decrease from 9.3% in July. In total, late or unpaid rent amounted to £288m, 2.2% less than in the previous month.
Brown added: “It’s encouraging to see tenant arrears fall for the first time in three months, despite the summer holiday season.
“A surprisingly resilient labour market, alongside a more stringent approach to referencing and credit checking by landlords, has helped prevent further rental arrears. However, rental inflation is still outstripping the growth in wages, and this will keep up the financial pressure on many tenants’ monthly budgets.”