Overall seven in 10 regions saw higher rents in February than January when the rate of increase was 1.4%, according to the latest Buy to Let Index from LSL Property Services.
The firm, which owns the UK’s largest lettings agents network including Your Move and Reed Rains, also pointed out that February was the second best month on record for tenant finances as proportion of late rent falls to 6.9%.
Landlords have earned an average annual return of 9.7%, or over £16,000, over the last 12 months. ‘Property to rent remains in high demand. Despite great improvements in the prospects of many first time buyers, there are still millions of households who rely on a healthy private rented sector for their homes,’ said David Newnes, director of LSL Property Services.
‘February’s annual increase remains below the rate of wider inflation. However, this latest uptick and the high level of demand in the lettings market emphasise the importance of ongoing investment. Landlords have invested heavily in expanding their portfolios and need to continue to do so to keep pace with demand from tenants,’ he added.
The sharpest monthly rises were seen in Yorkshire and the Humber and the West Midlands, where in both regions rents rose by 1.2% on a monthly basis. The next fastest monthly rise was in Wales with a 1% increase, while the East Midlands saw rents rise 0.6% between January and February.
Of the three regions to see a monthly fall in rents, the fastest drop was in the South East, down by 1.5% since January. Meanwhile rents fell by 0.6% on a monthly basis in the East of England, and by 0.1% in the North West.
A majority of regions also saw higher rents on an annual basis. The South West saw the quickest rise, up 4.7% from February 2013. This was followed by 3.3% in London and annual rent increase of 2.2% in the North West.
By contrast, rents in the East of England now average 3.1% less than a year ago, followed by a 2.3% annual drop for Wales and a 1.9% annual fall in the West Midlands.
‘Across the UK there has always been a huge level of variation between different local markets. But in the last year some of these differences have become more apparent as the property market has witnessed such a rapid shake up and improvement,’ explained Newnes. ‘Those looking to rent, or to let a property should look into the intricacies of their local market, which can have at least as much bearing on the level of rent as the property itself,’ he pointed out.
The index also shows that gross yields on a typical rental property remained steady on a monthly basis, standing at 5.2% in February, the same as in January 2014. However, yields have fallen slightly on an annual basis compared to February 2013, when the average gross yield on a rental property in England and Wales stood at 5.3%. This annual fall in yields is due to higher property values.
However, taking into account the same strengthening capital accumulation, plus slightly improved void periods between tenants, total annual returns on an average rental property rose to 9.7% in the year to February. This compares to 9.0% in January, and just 5.4% in February 2013, with the difference due to much faster house price increases. In absolute terms this represents an average return of £16,029, with rental income of £7,921 and capital gain of £8,108.
It points out 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 15.3% over the next 12 months, equivalent to £26,400 per property.
‘Landlords are experiencing a very good mix of total returns. Rents are rising steadily, while property values are growing at a healthy pace. Moreover the cost of finance is at a record low. Even the fundamental shortage of property in the UK may gradually improve in the medium term, as new home starts pick up this year. Looking ahead, the private rented sector is set to enjoy both solid demand from tenants, and the benefits of a new lease of life for the property market as a whole,’ said Newnes.
The financial situation of tenants has seen another month of strong improvements, with the total amount of late rent across England and Wales standing at £235 million, down £17 million since January. As a proportion, such tenant arrears now represent 6.9% of all rent, down from 7.4% in January, and representing the second lowest proportion of rent in arrears on record. Only November 2013 was a better month for tenant finances, when just 6.6% of all rent was late.
‘After the seasonal effects of December and January, late rent has fallen steadily towards record lows. There will always be some tenants who fall into difficulties, and landlords should always keep in touch and understand any situation that arises as quickly as possible. But the chance of tenants falling into arrears is receding,’ Newnes added.
