Tenants’ relief as rents finally fall in November

Robyn Hall

December 21, 2012

The average rent in England and Wales fell by 0.4% in November to £741 per month, the same level as September. However, the drop is half the 0.8% average November decrease seen since 2008. Despite the seasonal fall, rents in November were 3.4% higher than a year ago, the same rate of annual inflation as October.

Six regions saw rents drop in November compared to October. The largest fall was in the South East, where rents dropped 1.9% – the region’s first monthly decline since February, while the North West and West Midlands saw rents decrease 1.1% and 1% respectively. Rents rose the fastest in Wales and Yorkshire and the Humber, while London saw marginal monthly rental inflation of 0.2%.

On an annual basis, rents are higher than a year ago in all but one region, falling in Wales. Rental growth was the highest in London, where rents were 6.9% higher than in last November and hit a new peak of £1,104. Even after their monthly fall, rents in the South East registered the second largest annual increase, 3.4% higher than a year ago.

David Brown, commercial director of LSL Property Services, said: “In November, tenants gained a welcome respite as rents paused their climb upwards for the first time in eight months. Landlords look to avoid having properties empty over the Christmas period, and are often more flexible on pricing at this point in the year. But the rental market has not ground to a halt by any means. The housing market is still haunted by the demons of undersupply of new homes and tight credit conditions for buyers with the smallest deposits, which is pushing up tenant demand. This is cushioning the downwards pressure on rents normally seen in the final months of the year, and will see rent rises return as competition intensifies in spring.”

Annually rising rents and renewed growth in property values meant that the total annual return on a rental property was 6.0% in November. This represents an average return of £9,747 with rental income of £7,896 and a capital gain of £1,851.

If rental property prices maintain the same trend as the last three months, the average investor in England and Wales could expect to make a total annual return of 2.7% per property over the next 12 months – equivalent to £4,451 per property. The average yield on a rental property was 5.4%, compared to 5.3% a year ago.

Brown added: “2012 has seen concerted growth in the private rented sector as investors looked to cater to growing tenant demand and capitalise on lucrative yields on the cards in many areas of the country. This will continue into 2013. And with four in ten landlords expecting to increase rents next year, it’s likely the gap between monthly rental income and rock-bottom mortgage payments will widen yet further, allowing landlords even more flexibility on whether to take the profit, re-invest or save a slush fund for a rainy day. After the latest raid on pension savings in the Autumn Statement, the strong yields on offer in buy-to-let are likely to make it an increasingly attractive way to boost retirement income.”

The total amount of rent late or unpaid fell to the lowest level since June 2010, with total arrears of £241m, down from £265m in October. This equates to 7.4% of all rent across England and Wales.

Brown said: “A drastic improvement in the jobs market in recent months has made a real difference to tenant arrears, and reduced unemployment seems to be having a greater influence on the level of arrears than historically high rents at present. However, we’re also seeing many tenants acclimatising to the increased cost of rental accommodation, and prioritising meeting their monthly rent cheque above other spending. That said, Christmas usually places an additional strain on tenant finances and we don’t expect this year to be any different.

“In the longer-term, rent arrears will be closely tied to the impact further austerity cuts have on employment levels. If the rate of employment falls, and rents continue to rise, we will see arrears climb once more.”

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