Rents in England and Wales see fastest annual growth since 2011

The private rental sector in England and Wales has seen its fastest year for rent rises since 2011, with values up 3.4% in 2015, the latest index data shows.

The rise took average rents to £794 per month with the East of England seeing rents rise at twice the wider annual pace, up 7.8%, followed by London at 6.3%.

The data from the Your Move buy to let index also shows that Yorkshire & Humber and West Midlands both saw new all-time record high rents in December.

The significant rent rises over the course of 2015 also come despite a month on month drop in the latest market rents, falling 0.6% between November and December.

‘The fact that the majority of tenants can afford higher rents is certainly good news, and should be seen as a positive indicator as we enter 2016. Yet over the longer term, higher rents also raise a serious challenge for the future affordability of housing in this country,’ said Adrian Gill, director of estate agents Reeds Rains and Your Move.

A breakdown of the figures shows that in December, six out of 10 regions saw monthly falls in rents, in line with the overall month on month drop across England and Wales. This was led by London with rents down 1.6% lower, down 0.9% in the North West and down 0.6% in the North East.

Four regions saw rents rise on a monthly basis in December, led by Wales at 1.8%, followed by the South West up 0.9%, and Yorkshire and Humber and the West Midlands both up 0.3%. This took rents in both Yorkshire and Humber and the West Midlands to all-time record highs at £556 and £593 per month respectively.

Year on year rents increased in eight out of 10 regions led by the East of England with a rise of 7.8%, London up 6.3%, and the East Midlands up 4.7%. Rents fell by 1% in Wales and by 2.6% in the South East.

The index also shows that the gross yield on a typical rental property in England and Wales, before taking into account factors such as void periods, dropped to 4.9% in November, down from 5% in November 2015. On an annual basis, this is fractionally lower than the 5.1% gross yield seen in December 2014.

The report points out that accelerating property purchase prices are responsible for suppressing rental yields, but have also boosted landlords’ total returns. Taking into account both rental income and such capital growth, the average landlord in England and Wales has seen total returns of 11.3% over the course of 2015, up from 10.4% in the 12 months to November 2015 and the highest for a year.

In absolute terms this means that the average landlord in England and Wales has seen a return of £21,110 during 2015, before any deductions such as property maintenance and mortgage payments. Of this, the average capital gain contributed £12,438 while rental income made up £8,672 over the 12 months to December.

‘Existing property investors are seeing the paper value of their portfolios rise considerably, as purchase prices accelerate. Rents are rising too, but not yet at the same pace as the purchase market, inevitably pushing yields down a little. This means that landlords considering new investments will have a marginally more careful job to do of balancing their rental income with all of their expense including a potentially larger mortgage as prices rise. So higher purchase prices will be another factor on top of the much-discussed tax changes of the last six months,’ said Gill.

‘However, this is also an indication that rents have capacity to rise faster. Gross yields have not been this low for more than five years. In the next couple of months, there will likely be a surge of investment ahead of the April deadline to beat the Chancellor’s new buy to let stamp duty surcharge but beyond that and into the rest of 2016, lower yields may cool investment from landlords,’ he explained.

‘Slower growth in homes to let beyond April, in the face of a steady march of new demand from tenants, is likely to continue to push rents higher. There is some potential short term benefit to rising property prices. Conceivably, this might help some existing landlords to grow their portfolio, remortgaging to unlock fresh capital and continue to make use of low interest rates,’ he pointed out.

‘But over any period of time one thing is fundamental and that is that higher property prices will ultimately be expressed in higher rents, both of which demonstrate a shortage of housing in the UK.