Skip to content

Residential property rents rising more slowly, latest rental index shows

Rents rose by 0.1% between April and May, compared to recent average of 0.3% per month but the average rent in England and Wales remains 3.5% higher than in May 2012.

Rents in London have been increasing the most and are 7.2% higher than in May 2012, while the South West has seen no annual change, according to the latest Buy to Let Index from LSL Property Services which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

The average rent in England and Wales rose by 0.1% since April, to £737 per month.  This is slower than the average monthly increase of 0.3% over the previous 12 months but the latest increase still leaves rents up 3.5% up on an annual basis and brings rents in May to the third highest level on record.

The number of new lettings in May benefited from better tenant finances and slower rent rises, contributing to a 3% increase in the number of new tenants, compared to April. On an annual basis, there were 5% more new tenants than in May 2012.

Six out of 10 regions saw rents rise in May. The fastest increases were in the East Midlands, where rents are up 0.4%, followed by the North West with a 0.3% monthly rise. London, the South East and the East of England all saw rents 0.2% higher than the month before. However, rents in Wales fell by 0.7%, followed by a 0.4% drop in the West Midlands, while rents in Yorkshire and the Humber are down by 0.3% compared to April.

On an annual basis, there remains significant variation in the rate of rent rises. Once again, London dominated, with rents 7.2% higher than a year ago. Next fastest was Wales, where rents are up 5.2% since May last year, followed by the North East with annual rent rises of 4%.  In nine out of ten regions rents are higher than a year ago, with only the South West seeing no change since May 2012.

‘Despite a strong increase in new tenants, rents rose more slowly than other household costs.  But that demand would have been even stronger had it not been for a recent spurt in the number of first time buyers,’ said David Newnes, director of LSL Property Services.

He said that looking further ahead, sustaining the increase in new buyers will depend on how many tenants are able to build big enough deposits to get a mortgage.  ‘With wage growth so weak compared to inflation and house price growth, it looks like deposits will become less affordable which will keep demand for rented accommodation high,’ he explained.

He pointed out that the rental market has demonstrated its flexibility in May, but will need to continue to adapt to deal with the long term change towards levels of demand unprecedented in recent decades. ‘May’s figures are consistent with our longer term predictions that private renting will become a more and more vital aspect of the economy,’ said Newnes.

The data also shows that due to slower capital accumulation, the total annual return on a rental property fell to 5.3% in May. This represents an average return of £8,747 with rental income of £7,797 and a capital gain of £950. The average yield on a rental property was unchanged on a monthly basis, at 5.3% in May, compared to 5.2% in the same month last year.

If rental property prices maintain the same trend as the last three months, the average investor in England and Wales could expect to make a total annual return of 6.2% per property over the next 12 months, equivalent to £10,316 per property.
 
‘With the real heat of the summer market just around the corner, a slightly cooler market in late spring is likely only to be a mild interlude. But despite the very temporary reasons, last month will have been very welcome for tenants and landlords alike, with more lettings activity going hand in hand with more affordable rent rises. A slower monthly increase has had no significant effect on landlords’ annual returns, bolstered further by the better financial position of tenants,’ Newnes added.
 
The total amount of rent late or unpaid has improved by £6 million in one month. Total arrears in May were £276 million, compared to £282 million in April. This equates to 8.2% of all rent across England and Wales, compared to 8.4% of all rent in April.

Newnes said that tenants are gradually paying down rental arrears and this is part of a broader shift where consumers are focusing on deleveraging and shedding their bad debts. ‘It’s a clear long term trend, despite the occasional more difficult month. Landlords will be equally happy that tenants facing financial trouble have found an opportunity to pay down arrears,’ he pointed out.

‘But while this month will come as a relief for everyone, in the longer run it’s still unemployment levels and wage growth which matter the most to the affordability of rent.  Those factors will depend on the wider economic recovery, and the latest jump in inflation will make that long term struggle all the more gradual,’ he concluded.

Related