Average rents in England and Wales fall by 0.2% month on month

Average rents for homes to let across England and Wales fell 0.2% in May month on month and now stand at £792 per month, according to the latest index data.

This compares to a long term average monthly rise of 0.4% over every May since the recession but they are still up 1.8% over the last 12 months, the data from the buy to let index from Your Move and Reeds Rains shows.

However, on an annual basis rents have seen half the annual rate of rental growth seen at the start of 2016, when in January this stood previously at 3.6%.
 
According to Adrian Gill, director of lettings agents Your Move and Reeds Rains, the number of properties to let coming on the rental market has disrupted the normal dynamics of supply and demand.

‘Landlords escaping a much larger stamp duty bill by completing their purchases before 1st April have now finished their repairs and paperwork, with these homes to let competing for tenants in May and into June. That short term mismatch has made May an exceptional month, with excellent deals available for some prospective tenants,’ he explained.
 
He believes that overall the tax changes to the buy-to-let industry will discourage some property investors, and most of the properties that became available to let in May will have been planned purchases brought forward from later in the year.

‘The net effect will not be more properties to let, quite the opposite. If new regulations and taxes produce a drought of homes to let, then the overall shortage of housing in the UK will only bite harder for tenants. Meanwhile, this heightened shortage and possibly higher rents as a result could also protect landlords somewhat from the financial effects of more punitive rules and regulations,’ Gill pointed out.
 
A breakdown of the figures show that rent rises in London have slowed to just 1.0% over the year to May 2016. This compares to a peak seen in September 2015 when rents in London were 11.6% higher than a year before at the time.
 
By contrast, the East Midlands have witnessed rent rises of 7.3% over the year, followed by the West Midlands with 5.5% annual rent rises and the East of England with 3.6%.
 
All 10 regions of England and Wales have seen rents in May higher than a year ago. However the joint slowest annual rent rises have been in Wales and the South East, both seeing rents rise just 0.5% over the last 12 months.
 
London also leads the negative trend on a monthly basis with average rents in the capital falling 0.7% between April and May, a faster drop compared to a more modest drop of 0.2% in the month before. London is followed by the East Midlands where rents are 0.6% lower than a month ago and Yorkshire and the Humber with a 0.3% month on month fall.
 
At the other end of the spectrum, Wales leads with a 1.4% month on month jump in rents. The North East and the South East follow with month on month rent growth of 0.6% and 0.5% respectively.

Taking into account both rental income and capital growth, but before property-specific costs such as maintenance, the average existing landlord in England and Wales has seen total returns of 10.2% over the year to May. This is slightly lower than 10.7% seen a month before, over the 12 months to April, as property price growth has abated.
 
However compared to the year ending May 2015, when this measure stood at 9.4%, landlords have seen stronger returns over the most recent 12 month period.
 
In absolute terms this means that the average landlord in England and Wales has seen a return of £18,769 over the last 12 months, before any deductions such as property maintenance and mortgage payments. Of this, the average capital gain contributed £10,057 while rental income made up £8,712 over the year to May.
 
While existing landlords have seen total returns cool due to slowing purchase values, the same factors have supported gross rental yields. Despite rents dipping in May, rental yields are showing resilience thanks to a similar dip in property prices on a monthly basis.

The gross yield on a typical rental property in England and Wales before taking into account factors such as void periods is now 4.9% as of May 2016, the same as the 4.9% a month previously in April.
 
‘Landlords are vital in matching an escalating demand for homes from tenants. Such a scale of demand doesn’t look set to change dramatically just because of a few tax tweaks so professional and accidental landlords will always be an essential part of the solution. Financial rewards for investing in property, taking on risk and maintaining homes will have to reflect the importance of landlords for our economy and our society,’ said Gill.
 
‘Due to the nature of some of the tax changes on the horizon, the impact on landlords will depend heavily on their own personal finances and their wider portfolio. A higher rate tax payer with a larger property portfolio could see their tax bill change considerably due to the shift in the tax treatment of mortgage interest. But an accidental landlord with a single property could have a very different experience. Professional advice is essential, as is a solid business plan and an informed approach to letting property,’ he explained.
 
The index report also shows that tenant finances have deteriorated somewhat in May, with 9.3% of all rent due in the month standing in arrears of one day or more. This compares to 8.1% in April 2016. In a longer term context, the trend remains encouraging. May still compares very favourably to the all-time high of 14.6% of all rent payable in arrears set in February 2010.
 
However, the report also points out that while tenants have been more likely to fall a little behind with their rent, one day or more, in May, the chance of more serious problems developing has fallen.
 
Tenants are now less likely to fall serious behind on their rent, two months or more. In the first quarter of 2016 some 3,100 fewer households were in serious rent arrears defined this way, compared to the fourth quarter of 2015, or a 4% fall, according to the latest Tenant Arrears Tracker from Your Move and Reeds Rains.
 
Gill said that tenants are benefiting from a resurgent jobs market, responsible for the long term trend in household finances away from the bad old days of the recession. ‘This is having a particularly positive impact when it comes to the chances of tenants building up more significant arrears or ultimately losing their home. Such progress, even in absolute terms, is hugely encouraging as the private rented sector continues to grow rapidly,’ he added.
 
‘But the latest uptick in shorter term arrears goes to show that there’s no room for complacency. Rents have dipped unexpectedly in May but remain far higher than in previous years, while household earnings have lagged the wider recovery for some time. Landlords need to be aware of such risks and always keep lines of communication open,’ he concluded.