New rents across the UK fell by 0.8% in September and at an average of £910 per month are now just 3% above a year ago, according to the latest index.
It is the slowest annual growth rate recorded this year by the HomeLet Rental Index and means that rental price inflation has fallen in each of the last three months and slipped from a high point of 4.5% in March 2016.
This slowing rate of increase reflects modest decreases in average rents in many areas of the country, which may suggest we are reaching overall affordability thresholds, according to the index report.
However, although the rate of growth is slowing the September 2016, the index shows rents continuing to rise in almost every area of the country on an annual basis, with 10 out of the 12 regions surveyed recording an increase in the 12 months to September.
Of the other two regions, Scotland recorded a 1.7% decrease year on year with the average tenant signing up to a new tenancy agreeing to pay £610 a month rent. Meanwhile, rents in the North-East were unchanged.
A breakdown of the figures show that the biggest monthly decline was in the South East with a fall of 2.6% to an average of £1,020 with rents now 1.7% above a year ago. Rents fell by 2.2% in the South West to £799 and are 1.2% higher year on year and were down 1.2% in Wales to £609 which is 4.1% higher than September 2015.
The rest of the country saw more moderate falls. Rents were down 0.8% in Yorkshire and Humberside to £621 but are still 2.2% up year on year and down 0.7% in the North East to an average of £530 and are unchanged from a year ago.
The North West and Scotland saw rents fall 0.6% month on month to an average of £683 and £610 respectively and are 4% and in the North West are still 4% up year on year while in Scotland they are down 1.7% year on year.
Rents fell by 0.4% in Greater London, Northern Ireland, the East of England and the West Midlands to an average of £1,555, £594, £904 and £665 respectively. They are now 3% higher year on year on London, 3.2% up in Northern Ireland, 4.7% higher year on year in the East of England and 5.6% up in the West Midlands.
The East Midlands recorded the smallest month on month fall of 0.1% to an average of £602 and in this region rents are 2.1% higher than September 2015.
Martin Totty, HomeLet’s chief executive officer, believes that landlords are being very careful to ensure rents remain affordable for tenants. ‘Despite factors such as higher Stamp Duty on purchases for buy to let investors and the tax changes coming in from April 2017, it would appear so far landlords have absorbed any actual or expected decreases in their yields, rather than pass this on through higher rents,’ he explained.
He pointed out that inflation in the private rental sector is now running behind house price inflation and relative affordability of rented over ownership has improved. ‘Whether those impacted can afford to continue to keep rents stable may depend on other variables, such as mortgage interest rate movements. These tend to be determined by factors such as general inflation outlook and central authority interest rate responses,’ said Totty.
‘It seems a complex cocktail of external factors could now begin to play a role in determining the future direction of rents in a pre-Brexit economy. Landlords and tenants alike will need to monitor the market carefully as we get closer to the April 2017 reduction in tax relief on buy to let mortgage interest,’ he added.
He also pointed out that the recent trends in rental values appear to be changing. ‘This may yet prove beneficial for both tenants and landlords if it reflects some rebalancing between yields and affordability. Both are important for the proper functioning of the increasingly important private rented sector,’ concluded Totty.
