The data also shows that over last five years rents have grown by an average 3% per year but after inflation is taken into account this amounts to just 0.6% annually, the buy to let index from Your Move and Reeds Rains shows.
In absolute terms, the average residential rent across England and Wales has grown by £107 since January 2010, to reach £763 as of January 2015. This amounts to an average annual rent rise of 3.0% over the last half decade. However, this represents a real terms increase of 0.6% per annum when adjusted for inflation over the same period.
Most recently, rents have fallen on a monthly basis, down 0.6% between December 2014 and January 2015. On an annual basis, rents are 2.8% higher than was seen last January.
‘The nature and affordability of UK housing is transforming before our eyes. In the last five years the private rented sector has successfully absorbed an unprecedented influx of tenants, while rental prices have broadly tracked inflation,’ said Adrian Gill, director of estate agents Reeds Rains and Your Move.
‘As ever, the devil is in the detail but as this growth accelerates, even more investment will be necessary for the industry to keep up. So we need more buy to let landlords to help solve the crisis in demand for homes to rent,’ he explained.
He pointed out that it is also important to recognise that these figures don’t float in a hermetically sealed chamber. ‘Many other aspects of finance and the housing market feed into this sector. Rents represent a landlord’s attempt to recoup investment at a reasonable market rate dictated by consumer prices, inflation, and basic principles of supply and demand. Over the long term, rents also tend to reflect higher house prices,’ he said.
‘In real terms, rents have risen only incrementally. But any real and sustained growth in rents should offer a clear lesson. As with the purchase market, the only clear way to make rented housing dramatically more affordable is to build far more homes, far more quickly than is currently the case. And until this happens, landlords are likely to continue to earn double digit returns on their investments,’ he added.
Eight out of 10 regions saw lower rents in January 2015 than in December 2014. Only the East of England and the North East defied this downward trend, with 1.3% and 0.7% monthly increases in market rents, respectively.
The dominant movement towards lower rents in January was led by a 2% month on month drop in the South West, closely followed by the North West with a 1.7% drop, and the East Midlands with rents 1.6% lower a month ago.
Despite this round of month on month decreases, rents in almost every region are higher in January 2015 than they were in January 2014. On an annual basis, rents are now up by 8.8% in the East of England, the largest year on year increase of any region, followed by London at 4.8% and the East Midlands at 3.8%. The only two regions to see rents lower than a year ago are the North East and the South West, with 0.8% and 1.4% annual falls.
The index report also shows that gross rental yield on a typical rental property in England and Wales now stands at 5% as of January 2015, a 0.1% drop since December and a 0.2% point drop from a year ago.
Taking into account price growth and void periods between tenants, but before costs such as mortgage repayments or maintenance, total annual returns on an average rental property now stand at 11.7% over the 12 months to January. This compares to 11.8% over the 12 months ending December 2014.
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 £20,072 over the last year. Within this figure rental income makes up £8,021 while the average capital gain amounts to £12,051.
‘In the wider property market, house price growth has moderated slightly, and we’re seeing a complementary cooling in landlords’ total annual returns. But fundamental rental yields have remained stable, rippling very gently above the 5% mark. Moreover, most landlords are shrewd long term property investors who will choose their time to sell to maximise their capital gain,’ said Gill.
‘More investment is still needed in the private rented sector. Not only do rental properties provide an essential service, giving people who can’t yet afford to buy the mobility to seek out work, they are among the most stable investments available. More landlords on the market can only be better for tenants, allowing prospective renters more choice,’ he pointed out.
As of January 2015, 6.8% of all rent was in arrears, the lowest proportion of rent in arrears since November 2013. This represents rapid improvement on a monthly and annual basis. In December this figure stood at 8.9%, while 7.4% of all rent was in arrears in January 2014.
This also marks a significant improvement over the longer term, since 2010 when 11.1% of all rent was in arrears. Moreover, the largest arrears spike on record was seen just one month later, when in February 2010 tenant arrears stood at 14.6% of all rent due, or almost twice the current rate of rent arrears.
‘Tenants have leapt back into the black after December’s seasonal spike in arrears. In part this is a recovery from the usual festive squeeze but also the latest chapter in a far more significant trend. Seasonal blips aside, we’ve seen a clear reduction in tenants behind on their rent in the past half decade. This is a sign that tenants are more in control of their finances than ever before,’ Gill explained.
‘Just as years of joblessness dealt a devastating blow to tenant finances, the current rate at which people are being pipelined into employment is a tonic for levels of rent in arrears. In the future we will look back at these economic conditions and recognise that buy to let investors have never had it so good. It’s good news for tenants, good news for landlords, and good news for the economy,’ he added.
