Rents peaked in Yorkshire and the Humber, East and West Midlands, and London, according to the data from the latest buy to let index from Your Move and Reeds Rains.
On a monthly basis, rents across England and Wales rose by 1.9% to £804 in July, up from £789 the previous month and up 6.8% year on year, the largest annual rise on record.
‘Just when you think the rental market is accelerating at full throttle, it finds a way to shift into a higher gear. We’re seeing rent rises manage to hit record breaking speeds on both monthly and yearly time frames as far back as our data can go,’ said Adrian Gill, director of estate agents Reeds Rains and Your Move, .
He explained that with house prices rising and demand outstripping supply in the sales market the demand for rental properties has also begun to outstrip the available stock and this is driving up rents even faster than house prices.
‘A clear and concerted effort towards new-build properties is the most sensible way to address this issue. It boils down to supply and demand. However, it’s not the only possible response. The government could also ensure that we’re making the most efficient use of our small supply of homes, for instance by doing more to make it easier for people to downsize their properties when they want to,’ he added.
A regional breakdown of the figures reveals that four of the 10 regions of England and Wales saw record rent peaks in July; London, Yorkshire and the Humber, and the East and West Midlands while every region saw increases compared to last year.
Stronger than usual improvements in the West Midlands saw rents rise 3.6% over the 12 months to July 2015, bringing the average rent in the region up to £583. It’s a similar story in the East Midlands, with a 2.5% annual increase carrying rents up to £584.
Yorkshire and the Humber, by comparison, edged its way to a new record with a 2% year on year increase to £582 on average. Rents grew 12% on an annual basis in the East of England, to stand at £838 in July. Though it’s second only to London with growth of 12.1%, in terms of the speed of the 12 month improvement, this is actually the first time in 15 months that the rate of year on year rent increases has not accelerated.
Only two regions saw falling rents on a monthly basis with a 0.1% month on month drop in Wales and the East of England. Though rents are at a peak, Yorkshire and the Humber saw a modest 0.3% monthly increase. London took the lead with a 3.3% month on month rental increase.
However, surprise surges came from the South East up 3.3%, The North West up 1.4%) and the North East up 1.3% with the index report saying that the rental market in the north is starting to build some of the momentum seen down south.
‘With the East showing accelerating rental growth for well over a year, the area has now paused to let off a little steam. It’s interesting to see that the South East has jumped in to take up the slack, neck and neck with London jostling for pole position in monthly rent rises. It shows the effect that the high density capital is having on the surrounding areas as people move further out in search of affordable homes,’ said Gill.
‘The Midlands, too, are starting to show some serious purpose as the workhorse of the East eases back. As investment in the Northern Powerhouse starts to mature, we’re going to see more and more people looking for the flexibility offered by rental accommodation as they move in search of the jobs springing up outside of London, especially in high growth areas like Yorkshire,’ he added.
The index data also shows that the gross yield on a typical rental property in England and Wales, before taking into account factors such as void periods, rose to 5.2% in July, the first substantial increase seen since March. This compares to 5.1% in June 2015 and 5.0% in July 2014.
However, total annual returns fell in July. On average, landlords in England and Wales have seen returns of 8.7% over the year ending July 2015, down significantly from 10% in June and 12.5% in the year ending July 2014.
This means that the average landlord in England and Wales has seen a return of £15,632 in absolute terms, before deductions such as maintenance and mortgage payments. Of this, the average capital gain contributed £7,188 while rental income made up £8,444 over the 12 months to July.
‘House price growth is easing back and this has had an effect on total annual returns. However, rental yields are perking up to compensate. The mortgage market has stabilised after a post-election bounce, and the current political stability makes for clear sailing in the buy to let market despite the chronic housing shortage. With mortgage repayment rates so low and returns still remarkably enticing, there’s rarely been a better time to invest in rental properties,’ Gill explained.
Rent arrears improved, making up 8.4% of all rent payable in July 2015, down from 8.7% in June 2015 but still above 7.3% in July 2014. ‘July has seen us head back down the path towards greater financial security. It’s true that any rise in arrears is a setback, but the greater trend is clearly towards tenants in better control of their finances,’ said Gill.
‘The question isn’t if we’re able to improve the proportion of rent that falls into arrears, but how quickly we can improve it,’ he added.
Steve Bolton, founder of Platinum Property Partners believes that demand is rising as more people are renting as a lifestyle choice. But rising costs could affect the trend. ‘Although growing wage packets should help renters to cope with rising costs, some may start to find meeting their rental bill a struggle,’ he said.
‘Rents aren’t likely to fall any time soon, particularly as landlords face a number of increasing costs. When interest rates eventually rise, landlords will have to shoulder higher mortgage repayments, and the cap on mortgage interest tax relief threatens to shrink profits when it is introduced. Some landlords who are already struggling to break even may therefore be tempted to increase their rents as a way of regaining profit,’ he pointed out.
‘However, instead of passing these costs on to their tenants, landlords should focus on analysing their investment strategy. Maximising rental income is the best way of building a sufficient buffer against rising costs,’ he added.
