The latest buy to let index from LSL Property Services, which owns the UK’s largest lettings agent network, also shows that rents across the east and West are just £1 behind the all time record, set in October 2012, and in the 12 months since August 2012, average rents have risen by 1.3%.
The report also reveal that tenants’ finances are healthier, with total amount of late rent down by £10 million since July, and the pace of new lettings accelerated in August, as the number of new tenancies across England and Wales increased by 8.8% compared to July. On an annual basis, there were 13.7% more new tenants in August than in August 2012.
Overall some eight out of 10 regions saw higher rents in August. Rents in the South East rose the fastest of all, up 2%, while Welsh rents were 1% higher. The third fastest monthly rise was in the North West, with rents rising 0.9% compared to July. By contrast, rents in the North East fell by 0.8% in August, while the average rent in the East Midlands was 0.3% cheaper than the previous month.
On an annual basis, five regions out of 10 have seen rents rise in the last 12 months. By a significant margin, London saw the fastest annual increases, with rents up 4.8% in the last year. This was followed by Wales, where rents are 2.3% higher than 12 months ago, while the East Midlands saw the third largest annual rise, with rents up 0.9% since August 2012.
By sharp contrast rents in Yorkshire and the Humber are 1.6% lower than in August 2012, followed closely by a 1.5% annual fall in the North West, while rents in August were 1% lower than a year ago in the West Midlands.
David Newnes, director of LSL Property Services, said that better availability of finance has allowed some households to leave the rental market. ‘Rents certainly felt the short term impact of that. But releasing a blast of that pent up pressure to buy a home is unlikely to change the long term trend to renting. Although government schemes are helping, buying a first home is still extremely hard on the back of low salary growth. As hundreds of thousands of new households look for homes, it’s increasingly private renting that’s absorbed the pressure. Autumn brings the seasonal peak for the rental market, in part due to the spike caused by student renters, and the sheer volume of lettings activity shows demand this year is as strong as ever,’ he explained.
Gross yields on a typical rental property remained steady at 5.3% in August. However, taking into account void periods between tenants and capital accumulation, total annual returns on an average rental property rose to 6.2% in August, compared to 5.6% in July. In absolute terms this represents an average return of £10,207, with rental income of £8,051 and a capital gain of £2,156.
If rental property prices continue to rise at the same pace as over the last three months, which with renewed housing market activity has been at higher levels, the average buy to let investor in England and Wales could expect to make a total annual return of 13.1% over the next 12 months, equivalent to £22,065 per property.
‘A powerful surge of capital accumulation is re-joining solid rental income. And it seems that potent combination means landlords can look forward to even better returns over the next 12 months. Healthier tenant finances are supporting bottom line returns, and are also a sign of the increasing maturity of the market,’ said Newnes.
The total amount of rent late or unpaid fell in August, with the amount of outstanding rent £10 million lower than in July. Total arrears in August were £263 million, compared to £273 million outstanding in July. This equates to 7.8% of all rent across England and Wales, down from 8.1% of all rent in July.
‘The forces of inflation and weak wages are still aligned and still stretching household budgets. But rents are a significant part of monthly expenditure for most tenants, and the reprieve of the last few months compared to recent years has been very welcome. Things aren’t completely sorted, and household finances are still damaged from an economic storm that’s lasted five years,’ explained Newnes.
But while finances are strained, the chance of wreckage is receding for most households. People are no longer battening down the hatches like they were last year, or even a few months ago. Meanwhile the construction industry is finally looking much healthier and alongside what could be a real increase in the supply of all homes, sustained growth in buy to let lending will allow the private rented sector to grow in a balanced way, meeting demand,’ he added.
David Whittaker, managing director of Mortgages For Business, said the rental market is approaching the busiest time of year and the first signs of that autumn rush are already apparent. ‘The results of the LSL index are encouraging. We are certainly seeing growing numbers of new investors looking to take advantage of competitive buy to let rates and as long as they have clean credit profiles placing these deals among the mainstream buy to let lenders is relatively straightforward,’ he pointed out.
‘Professional landlords too are seeking to expand their portfolios and there is much refinance activity as a result as they go about raising funds to make further purchases. Placing these deals is trickier as the majority of lenders continue to steer clear of complex borrowing scenarios. Experienced landlords are a vital component of the private rented sector and should be supported in their endeavours to expand,’ he added.