Rents are also at a new all-time record in absolute terms with the average rent at £774 the most expensive rental prices on record, according to the latest buy to let index from Your Move and Reeds Rains.
The index data also shows that on a monthly basis, rents grew by 0.8% between March to April, the fastest month on month growth since September.
Growth is fuelled by a fundamental shortage of housing and renewed wage growth, according to Adrian Gill, director of estate agents Reeds Rains and Your Move.
‘Economic progress has brought about a slow but steady stream of household earnings and employment, the most basic requirements for rent rises and these modest improvements have driven rents up at record speed. People have more money in their pockets, but we’re in danger of seeing that recovery squandered away on a housing shortage,’ he said.
A regional breakdown of the figures shows that in the East of England, rents are not just increasing but accelerating on an annual basis. Compared to April last year, rents grew by 12.5%, up from 12% annual growth in March 2015 and 10.2% over the 12 months to February 2015.
London comes in second for annual rent rises with a 7.8% increase since April 2014. Again this represents an acceleration compared to 5% annual rent rises in March and 4.9% in February. After London, Yorkshire and the Humber comes in third with a 2.2% annual rent rise.
On the other hand rents in Wales are actually 2.8% lower than they were in April last year. On a similar note, rents in the North East have fallen back 0.8% on last April’s figures while rents in the East Midlands have edged down 0.2% over the last 12 months.
Looking at monthly rent rises, London is dominant. From March to April, London’s rents increased by 2.3%. The South West came in second, with rents up just 1.1% over the last month, closely followed by the West Midlands with a 1% increase between March and April.
By contrast, rents in Wales fell 1.8% on a monthly basis. Similarly, rents in both the North West and North East of England fell by 1.4% between March and April.
‘The East of England has witnessed rapid growth in property purchase prices, and rental prices have taken a similar course, albeit even faster. Away from the East, London is the real figurehead for the housing dilemma. Rent rises tend to follow wage-growth, so it’s no surprise to see this clustered around the South,’ said Gill.
‘However, this could change if demand for jobs and homes in northern England starts to catch up with supply in a similar way. For example, if George Osborne’s commitment to the northern powerhouse stimulates more investment in infrastructure and more jobs that will boost the success of places like Manchester but the housing supply crunch could spread to northern cities if space isn’t found for homes too,’ he explained.
The index also shows that the gross rental yield on a typical rental property in England and Wales stands at 5.1% as of April 2015 which is stable compared to 5.1% in March this year and 5.1% in April 2014.
However, total returns have dipped on cooler property price rises. Taking into account changes in property prices and adjusting for void periods between tenants, but before costs such as mortgage repayments or maintenance, total annual returns on an average rental property now stand at 8.9% over the year to April. This compares to 10.2% over the 12 months to March and 11.5% a year ago.
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 £15,503 over the last twelve months. Within this figure rental income makes up £8,247 while the average capital gain amounts to £7,256.
Looking ahead, the report says that if current trends continue, then over the next 12 months, ending April 2016, the average landlord would see a total return of 3.4%, or £6,256. Of this, rental income would yield £9,292 while capital growth would be negative amounting to an average drop of £3,036, if price trends continue as has been seen over the last three months.
