This takes the average rent to £799 a month which means they have fallen below the psychologically important £800 mark, according to the latest buy to let index from Your Move and Reeds Rains.
Average rents now stand at £799 per month. This follows a month-on-month fall of 1.2% – down from September’s all-time record high of £816.
Despite month-on-month falls, rents have risen considerably over the course of the last twelve months. Across England & Wales annual rent rises stand at 4.0%, comparing November 2015 with November 2014. Taking into account CPI inflation of 0.1%, this leaves real-terms annual rent rises of 3.9%.
Adrian Gill, director of estate agents Reeds Rains and Your Move, pointed out that while rents are cooling right now this could be different next year when the new 3% extra stamp duty becomes payable on buy to let properties as this could force rents upwards again.
A breakdown of the figures shows that six out of 10 regions seen rents fall on a monthly basis, Wales has seen rents rise by 2.9%, the East Midlands by 1%, the West Midlands by 0.4% and Yorkshire and the Humber by 0.2%. On the back of this, both Yorkshire and the Humber and the East Midlands have seen fresh record rents of £554 and £610 respectively.
By contrast southern regions have led the downturn in rents downwards. The South East saw rents fall by 3% month on month and they were down 2% in the South West and 1.2% in London.
However, year on year rents are 8.9% higher in London and 8.4% in the East of England. They are also up 5.1% in the East Midlands. By contrast Wales has seen rents drop 3.8% in the space of 12 months and the South East is down 3.5%.
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 5% in November, down from 5.1% in October 2015. This is also higher than the 5.1% gross yield seen a year ago in November 2014.
Accelerating property purchase prices have boosted landlords’ finances, despite suppressing rental yields. Taking into account both rental income and such capital growth, the average landlord in England and Wales has seen total returns of 10.9% over the 12 months ending November 2015, up from 10.4% in October 2015.
In absolute terms this means that the average landlord in England and Wales has seen a return of £19,668, before any deductions such as property maintenance and mortgage payments. Of this, the average capital gain contributed £11,057 while rental income made up £8,611 over the 12 months to November.
Meanwhile, despite lower gross yields, which would normally imply that rents will need to rise more rapidly to catch up with property prices, and a generally accepted lack of supply in the face of tenant demand, landlords are nevertheless pessimistic regarding future rent rises, expecting average rent rises of just 1.4% over the next year, according to the latest Landlord Survey from Your Move and Reeds Rains.
‘Just as the Chancellor’s stamp duty changes will favour existing landlords over those aiming to grow their portfolios, rising property prices are having a similar effect. Rental yields are lower mainly as a result of higher prices, while those who already hold property investments are able to mark up the value of their investments,’ said Gill.
‘This is a good thing for the financial health of landlords and therefore the resilience of the buy to let industry to any unforeseen shocks. But for new entrants, or landlords looking to invest in additional properties to let, market conditions could be a little harder to navigate than six months ago. Choosing the right property in the right area is even more important when looking for the best rental yield on new investments,’ he explained.
‘Partly this is down to enormous competition in the property purchase market as homes are being sold rapidly, whether to landlords or owner occupiers. It is a property seller’s market. Similarly as yields continue to feel the pressure of rising prices, other factors will need to adjust in turn. That means higher rents,’ he pointed out.
‘Most likely this will push rents higher still and indicates an earlier spring for rent rises in 2016. Combined with the latest attacks on landlords from the government this could propel demand even higher for every single home that landlords do have to offer. A continued shortage of properties to let is the challenge to overcome and the government needs to think pragmatically about this conundrum rather than looking for political targets,’ he added.
The report reveals that tenant arrears have seen a setback, following two months of successive improvements. After dropping from a previous peak of 9.9% of all rent payable in August, to 7.9% as of October, rent arrears have risen once more to reach 8.2% as of November 2015. On an annual basis this also represents a worsening, up from 7.5% of all rent due in November 2014.
Gill explained that rent arrears depend on a huge variety of issues, including the plethora of factors that feed into family finances every month and within that, seasonal effects like Christmas and New Year certainly count. ‘But this is now a consistent upwards trend on an annual basis. Landlords should be aware that tenant arrears are higher than they were in November last year, just as we approach the festive period,’ he said.
‘Over the longer term there have been great improvements in tenant finances. This measure of arrears has almost halved since its peak at nearly 15% at the start of 2010. With earnings rising and the labour market strong, there is a feeling of affordability for many tenants. But not everyone can feel that benefit when there aren’t enough homes to go round,’ he added.
‘The answer lies in more investment. Landlords should be aware of the risk of arrears, but it remains manageable with the right checks and good communication. There is no shortage of good tenants. In addition, not all cases of arrears are alike. Within weeks, we will be releasing additional figures on trends in more serious cases of tenant arrears, which have shown a more positive trend over 2015,’ he concluded.
