Annually, this leaves rents 1.9% higher than October 2012 and at a new all time high, says the index report from LSL Property Services which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.
October also saw lettings activity accelerate on an annual basis. The number of new tenancies agreed across England and Wales increased by 7.4% compared to October 2012. This was despite a minor slowdown on a monthly basis, with 1.6% fewer new lettings than in September.
While as a whole rents across England and Wales rose on a monthly basis, seven out of 10 regions saw rents fall between September and October. The fastest monthly fall was in the West Midlands, with rents down 3.6% since September. This was followed by a fall of 2.4% in the East Midlands and a monthly drop in Yorkshire and the Humber of 1.7%.
However, the South East experienced rent rises of 2.4% between September and October, while rents in the South West rose 1.5%, and London saw rents rise on a monthly basis by 1.3%.
On an annual basis, London saw by far the sharpest rent rises, some 4.9% higher than in October 2012. While this was followed by a 3.1% annual increase in the South East, Wales matched this figure, with Welsh rents also 3.1% higher than a year ago.
Meanwhile, rents in the East Midlands have fallen over the last year by 3.9%. This was followed by a 1.5% annual drop in the North East, while rents in the West Midlands are now 1.2% lower than in October 2012.
‘At a time when a seasonal slowdown would usually be expected rents are up again. The lettings market appears to be experiencing an extended Indian summer. Normally we can expect the rush of early autumn to fade into a late autumn hibernation but demand for homes to rent seems unabated, and still well ahead of a year ago,’ said David Brown, commercial director of LSL Property Services.
‘While buying a home is certainly getting easier, it’s the private rental market which is taking the strain for the majority of new households. With below inflation rises it is renting which is still relatively affordable in the face of struggling wage growth and rock bottom savings rates,’ he added.
The index also shows that gross yields on a typical rental property remained steady at 5.3% in October, the same as in September. However, taking into account capital accumulation and void periods between tenants, total annual returns on an average rental property rose to 9.7% in October. This compares to 8.4% in September, with the increase due to accelerating house price rises. In absolute terms this represents an average return of £15,837, with rental income of £8,277 and capital gain of £7,560.
The report says that if rental property prices continue to rise at the same pace as over the last three months, the average buy-to-let investor in England and Wales could expect to make a total annual return of 14.5% over the next 12 months, equivalent to £24,921 per property.
‘Rents are still rising, but the pace of change is stabilising, a sure sign of health for the lettings market. Even before the latest wave of price rises, plain rental yields are stable and set to grow. Moreover, with tenant finances improving, those yields on paper will be more easily realised,’ said Brown.
‘Yet on top of rental income, surging capital accumulation is delivering another source of confidence. As prices rise, not only does the importance of a relatively affordable rental market increase, but the incentives for landlords to expand their portfolios are growing too,’ he pointed out.
Tenant finances saw a rapid improvement in October, with the total amount of late rent across England and Wales falling by £49 million since September to £245 million. As a proportion, this represents 7.1% of all rent, down from 8.5% in September. On an annual basis tenant arrears have also improved, with the total amount of late rent down by £28 million since October 2012, and also down as a proportion on an annual basis, from 8.1% of all rent in arrears in October 2012.
October’s measure of tenant arrears at 7.1% of all rent represents the healthiest month for tenant finances since LSL began recording this data in November 2008. During that month five years ago, 13.1% of all rent in the UK was in arrears.
‘Until we can boost home building to the tune of an extra 200,000 a year, rents will keep rising on an annual basis. Yet annual rises are still below inflation. Without a doubt households don’t have cash to burn at the moment. So the fact tenants have paid down late rent to such an extent is testament to the professionalism of landlords, the availability of advice for tenants, and the stability of the entire industry,’ explained Brown.
‘The first rung of the housing ladder is still a big step up. Despite a healthier circulation of mortgages, even a 5% deposit is fast becoming a challenge for many would be first time buyers. For the foreseeable future a healthy private rented sector will be as critical for the UK economy as it is for those besieged every month with other household bills,’ he added.
According to David Whittaker, managing director of Mortgages For Business, more finance is allowing landlords to expand their portfolios. ‘Demand for tenancies continues to heat up, despite better prospects for some new buyers,’ he said.
‘In fact, the prospect of price rises is fanning the flames of annual returns for landlords, and healthier tenant finances are making rental income easier to realise in practice. As landlords try to keep up with demand, they are remortgaging in record numbers,’ he explained.
‘So in future, even more buy to let finance is required to make enough homes available. Landlords haven’t played such an important part in Britain’s housing market since the 1960s but simply can’t continue to play that role without the growing support of lenders,’ he added.
