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Rents rise more slowly than inflation

Sam Cordon

August 16, 2013

On an annual basis this leaves rents 1.8% higher than a year ago meaning the year on year increase has fallen below the rate of CPI inflation set at 2.8% in July.

David Brown, commercial director of LSL Property Services, said: “In the medium-term we expect rents to at least keep up with wider inflation. Alongside the continued struggle for the majority of would-be first-time buyers, more tenants are entering the market.

“And this record demand is still confronted with a shortage of new homes to let. It’s also worth bearing in mind that the UK economy as a whole is still struggling with the same constraints on wages and inflation.”

But Brown said the all areas of the economy were building up a head of steam and reigniting the property market was a natural part of that.

He added: “It’s unlikely July will be typical after the initial change of pace in the purchase market but a few months of more affordable rents are a win-win for everyone.”

The average rent in England and Wales reached £738 per month in July, a monthly increase of 0.2% compared to a 1% rise in July last year while the average rate of monthly inflation in July stood at 0.9% since 2008.

Meanwhile the number of new tenants in July has grown strongly. Between June and July the number of new tenancies increased by 6.6% across England and Wales.

And on an annual basis there were 12.3% more new lettings in July than in July 2012.

Regional variation remained significant. Six out of ten regions saw rents increase in July. Wales and the South East saw the fastest monthly rises with rents in both regions up by 0.8% since June.

Rents in the North West were just behind at 0.7% higher than last month while London came in fourth place after a 0.3% monthly rise between June and July.

By contrast rents in the South West fell by 1.1%, and the North East saw rents drop by 0.8% on a monthly basis.

In the West Midlands rents were cheaper in July for the third month in a row, down by 0.6%.

On an annual basis seven regions out of ten have seen rents rise in the last twelve months. By far the most rapid of these increases has been in London, at 5.7%.

Although this has brought rents in the capital to a fresh record the pace of annual rises has slowed. The second fastest rises were in the East Midlands, with rents up 2.2%, and the North East where rents are 1% higher than in July 2012.

Brown said: “This summer the house purchase market has jerked into motion. And everyone is feeling the impact of that sudden change of gear. Buying a first home might only be possible for those with a big enough deposit and sufficient earnings but the effects are reverberating through the rental market too.

“The supply of rental accommodation is increasing while demand has softened slightly because of the improvement in first-time buyer numbers.”

Rental yields have held steady for landlords. Gross yields on a typical rental property remained steady in July at 5.3% up slightly from 5.2% last July.

And if rental property prices continue to rise at the same pace as over the last three months the average investor in England and Wales could expect to make a total annual return of 8.9% over the next 12 months, equivalent to £14,735 per property.

The total amount of rent late or unpaid fell in July with the amount of outstanding rent £7m lower than in June.

Total arrears in July were £273m compared to £280m outstanding in June. This equates to 8.1% of all rent across England and Wales down from 8.3% of all rent in June.

Brown said: “Households have already had a snippet of good news this week with consumer price inflation dropping to 2.8%. But that’s still well above target and a good 1% faster than wage growth.

“More affordable rents have had much more impact. While rent rises are unlikely to stay below inflation for very long, the effect on tenant arrears seems clear and we’re expecting tenants’ finances to keep getting gradually healthier.”


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