Rents rise 3pc over course of 2014
The average residential rent across England and Wales now stands at £767. This compares to £745 in December 2013.
Strong annual growth comes despite falls on a monthly basis, with average rents 0.1% lower than seen in November 2014.
Adrian Gill, director of estate agents Reeds Rains and Your Move, said: “There appears to be a new fire in the rental market as we enter 2015. Demand for homes to let is hotter than we would normally expect at this time of year.
“Recent months have shown a divergence from usual seasonal norms. Historically, there is a tendency for rents to ease in the winter, particularly December.
“With fewer tenants willing to relocate in the festive period, landlords usually compete to fill empty properties and agreed rents tend to dip as a result.
“Last month that happened – and rents fell compared to November – but by much less than the usual extent.
“In particular a jobs boom across the eastern regions of England has seen a larger than usual number of people relocating in the winter months. This has pushed up rental prices in these regions even further.”
Rents are higher than a year ago in eight out of ten regions of England & Wales. This is led by the East of England, with a 7.6% annual increase.
The East Midlands has seen rents rise by 6.2% on an annual basis, followed by London where rents are up 4.1% over the last twelve months, and Yorkshire and the Humber with a 3.4% annual increase. As a result, these four regions have seen a new record for rents in December.
By contrast rents in two regions are lower than a year ago. Average rents in the North East fell by 2.1% over the course of 2014, while rents in the South West are 1.0% lower on an annual basis.
Most recently, three regions have seen rents continue to rise between November and December, despite an overall drop on a monthly basis across England & Wales.
This is led by London with rents 0.9% higher in December than in November, followed by a 0.7% rise in Yorkshire & the Humber and a 0.2% month-on-month increase for the East of England.
By contrast the South East has seen the sharpest month-on-month fall in the cost of renting, down 1.5% between November and December. This is followed by a 1.3% monthly drop in the North West and rents in Wales which are now 1.1% lower than in November.
Tenant finances deteriorated in December, as is often seen over the festive period. The proportion of all rent in arrears stands at 8.9% as of December 2014, up from 7.5% in November.
However this represents an improvement compared to December 2013, when 9.7% of all rent was in arrears. Moreover, looking at average proportions of rent in arrears over the course of each year as a whole, the wider trend becomes clear: overall, arrears are improving every year.
Over 2014 as a whole, tenant arrears average 7.5% of all rent, down from an average of 8.1% over the previous twelve months.
Gill said: “December is always a testing time, and it’s abundantly clear that many households aren’t out of the financial woods yet.
“But looking at the big picture improvements, 2014 has been a success. There is a clear trend towards renters being more in control of their finances. December’s setback is just that.
“Even taken alone in 2014, December represents an improvement from the worse spike in arrears witnessed in December 2013”.
The gross yield on a typical rental property in England & Wales now stands at 5.1% as of December 2014.
While stable compared to 5.1% seen in November, this is a decrease of 0.2 percentage points compared to December 2013 when the average landlord would expect a 5.3% gross yield.
Taking price growth and void periods between tenants into account (but before costs such as mortgage repayments or maintenance) total annual returns on an average rental property are now 11.1% over the twelve months to December 2014.
This is slightly lower than the 12.0% registered in November 2014, though an improvement on the previous December when total annual returns stood at 9.2% over the course of 2013.
In absolute terms this means the average landlord in England and Wales has seen a return, before deductions such as mortgage payments and maintenance, of £18,893 over the last twelve months. Within this figure rental income makes up £8,347 while the average capital gain amounts to £10,546.
Gill said: “While total returns have fallen, they remain well over ten percent. Property prices have risen a little more gradually in recent months, as the purchase market experiences its own winter lull – and as restraints and uncertainties for the property market have grown slightly in the latter months of 2014. However, that hasn’t seriously dented prospects for landlords.
“In fact, with rents up and yields steady, more landlords can be confident that the central determinant of their business model is holding firm.
“Throughout 2014 gross yields hardly departed from their long-run average of 5%, which bodes well for landlords looking to invest this year.”