New rents in the UK increased by 2.6% in January overall year on year, the fastest rise for the month in two years but continued to fall in London, the figures from Countrywide have revealed.
January saw 36% of landlords increase the rent when signing a new tenancy, up from 27% at the same time last year the index also shows.
A breakdown of the figures reveals that rental growth has been led by areas outside London, with rents in the capital 2.7% lower than they were last year but up 8.8% in Wales, up 8.2% in the South East and up 7.8% in the East of England.
The highest rents are now in £2,298 a month in central London and £1,260 in Greater London, down 6.6% and 2.7% respectively compared with January 2015 while the average rent nationwide is £929.
The monthly index report also found that a record number of landlords are paying for their buy to let properties in cash. In January some 61% of landlords paid cash, up from 59% last year and 41% in 2007.
Landlords in the North West are most likely to pay in cash while London landlords are most likely to use a mortgage while those in London are most likely to fund their portfolios with a mortgage. The report suggests that this is because of much higher prices in London.
The report says that landlords who have chosen to buy since the introduction of the 3% stamp duty surcharge on additional homes in April 2016 have relied more heavily than ever on cash to fund their purchases.
Over the last decade the proportion of landlords buying with cash has steadily increased. In 2007 just 41% of landlords bought a home without a mortgage, a figure which peaked at 58% by 2010 before dropping back.
Cash purchases drive the top and bottom of the rental market with the most and least expensive homes most likely to be bought with cash. Over the last year 65% of those costing less than £125,000 were paid for in cash while 64% of landlords paid in cash for homes costing £1 million or more. Some 24% of all landlord cash purchases were funded by the sale of another property elsewhere.
According to Johnny Morris, research director at Countrywide, on average landlords sell a home once every 17 years meaning as prices have increased, a significant amount of wealth has built up in the sector.
He said: “This is now fuelling cash purchases. With the forthcoming tapering of tax relief on mortgage interest payment, landlords have less of an incentive to borrow, suggesting more cash activity in 2017.”
He also pointed out that rents are rising at twice the pace of last January and there are signs that rental growth is starting to pick up in much of the country and 10 months after the introduction of the stamp duty surcharge the number of homes on the rental market is showing signs of coming down.
He added: “If this fall continues over the next few months, it is likely to support rental price growth.”