Rents in England and Wales up by 3% in 2014, latest index shows
Rents in England and Wales increased by 3% over the course of 2014, despite falling on a monthly basis between November and December, the latest index data shows.
The average residential rent across England and Wales now stands at £767 compared to the £745 recorded in December 2013, according to the buy to let index from Your Move and Reeds Rains.
The firm said that this ‘strong annual growth’ comes despite falls on a monthly basis, with average rents 0.1% lower than they were in November 2014.
‘Recent months have shown a divergence from usual seasonal norms. Historically, there is a tendency for rents to ease in the winter, particularly December. With fewer tenants willing to relocate in the festive period, landlords usually compete to fill empty properties and agreed rents tend to dip as a result. Last month that happened and rents fell compared to November but by much less than the usual extent,’ said Adrian Gill, director of estate agents Reeds Rains and Your Move.
‘In particular a jobs boom across the eastern regions of England has seen a larger than usual number of people relocating in the winter months. This has pushed up rental prices in these regions even further,’ he added.
Indeed, rents are higher than a year ago in eight out of 10 regions of England and Wales. This is led by the East of England, with a 7.6% annual increase. The East Midlands has seen rents rise by 6.2% on an annual basis, followed by London where rents are up 4.1% over the last 12 months, and Yorkshire and the Humber with a 3.4% annual increase. As a result, these four regions have seen a new record for rents in December.
By contrast rents in two regions are lower than a year ago. Average rents in the North East fell by 2.1% over the course of 2014, while rents in the South West are 1% lower on an annual basis.
Most recently, three regions have seen rents continue to rise between November and December, despite an overall drop on a monthly basis across England and Wales. This is led by London with rents 0.9% higher in December than in November, followed by a 0.7% rise in Yorkshire and the Humber and a 0.2% month on month increase for the East of England.
By contrast the South East has seen the sharpest month on month fall in the cost of renting, down 1.5% between November and December. This is followed by a 1.3% monthly drop in the North West and rents in Wales which are now 1.1% lower than in November.
The monthly index report also shows that tenant finances deteriorated in December, as is often seen over the festive period. The proportion of all rent in arrears stands at 8.9% as of December 2014, up from 7.5% in November.
However the report points out that this represents an improvement compared to December 2013, when 9.7% of all rent was in arrears. Moreover, looking at average proportions of rent in arrears over the course of each year as a whole, the wider trend becomes clear, showing that overall arrears are improving every year.
Over 2014 as a whole, tenant arrears average 7.5% of all rent, down from an average of 8.1% over the previous twelve months.
‘December is always a testing time, and it’s abundantly clear that many households aren’t out of the financial woods yet. But looking at the big picture improvements, 2014 has been a success. There is a clear trend towards renters being more in control of their finances. December’s setback is just that. Even taken alone in 2014, December represents an improvement from the worse spike in arrears witnessed in December 2013,’ Gill pointed out.
The gross yield on a typical rental property in England and Wales now stands at 5.1% as of December 2014, according to the index. While stable compared to 5.1% seen in November, this is a decrease of 0.2% compared to December 2013 when the average landlord would expect a 5.3% gross yield.
Taking price growth and void periods between tenants into account, but before costs such as mortgage repayments or maintenance, total annual returns on an average rental property are now 11.1% over the 12 months to December 2014. This is slightly lower than the 12.0% registered in November 2014, though an improvement on the previous December when total annual returns stood at 9.2% over the course of 2013.
In absolute terms this means the average landlord in England and Wales has seen a return, before deductions such as mortgage payments and maintenance, of £18,893 over the last twelve months. Within this figure rental income makes up £8,347 while the average capital gain amounts to £10,546.
‘While total returns have fallen, they remain well over ten percent. Property prices have risen a little more gradually in recent months, as the purchase market experiences its own winter lull and as restraints and uncertainties for the property market have grown slightly in the latter months of 2014. However, that hasn’t seriously dented prospects for landlords,’ explained Gill.
‘In fact, with rents up and yields steady, more landlords can be confident that the central determinant of their business model is holding firm. Throughout 2014 gross yields hardly departed from their long run average of 5%, which bodes well for landlords looking to invest this year,’ he concluded.