If rents had risen in line with inflation since 2008, tenants would be paying £113 more per month than they are, the data from Belvoir Lettings, one of the largest residential agencies shows.
In 2008, rents of £705 per month were being achieved. Research shows that following fall backs in 2008 and 2009, and some rises through 2011 and 2012, rents are now beginning to stabilise.
During 2012 average monthly UK rents were £682, remaining pretty steady throughout the year, with a slight fall being recorded in September to £678 per month and in October to £677 per month.
The report also confirms that from a tenant’s perspective, renting a property in the UK represents good value for money, with rents moving in line with wages rather than inflation.
However, research shows that landlords who invested in property for additional income and long term capital growth have been able to benefit from attractively low rates, enabling them to manage the cash flow of investment properties, even though rents have not risen much during the last five years.
Areas yet to recover to September 2008 levels include the East Midlands, East Anglia, North West and Yorkshire and areas stabilising around 2008 levels include the West Midlands and Scotland. Areas where rents have recovered to 2008 levels and are rising include the South West, South East, North East and London.
It also found that in Scotland average rents have remained stable at £550 a month over the last two years and average rents in Wales have remained at £600 a month in the last 12 months.
The agency says that due to the prominence of the accidental landlord, people who have moved but can’t sell their home, a substantial amount of rental stock may disappear when the property sales market recovers.
‘Since the credit crunch, rents have proved to be good value for money. Few rents have kept pace with inflation as they tend to track wage inflation and although wages have gone up the cost of living has gone up more, leaving people with less disposable income,’ said Belvoir chief executive officer Dorian Gonsalves.
‘In 2007, the average median gross wage according to Office of National Statistics was just under £25,000. The latest figures for 2011 were £26,871, representing a 7.5% increase. According to the Bank of England Inflation Calculator goods that cost £100 in 2007 would cost £113.84 in 2011. This is an increase of 13.84%,’ he explained.
‘In contrast, on average tenants in London are paying higher rents than the average wage and inflation rise, whereas tenants in all other regions, on average are paying less than both wage and goods inflation. So renting has since the credit crunch, on average, delivered good value for money for tenants,’ he added.
He believes that overall, considering the falls in property prices since 2007 and reasonable rents, many would be first time buyers have been wise to remain in the private rental sector. ‘Rents are moving in line with wages as opposed to inflation and if something goes wrong with the property, inevitably a landlord picks up the tab, so tenants aren’t hit with nasty expenditure surprises as much as a buyer would be,’ he said.
‘In addition, renting offers better mobility both from a location perspective, but also from a trading up or down perspective in terms of rent commitment, which in this tough job market could be considered a wise move,’ he added.
He also pointed out that from a landlord perspective, as long as the rent is covering income, most are happy. ‘Many landlords are on good value mortgage rates due to the competitive nature of the market prior to the credit crunch. With the fall in interest rates having a knock on effect particularly on tracker mortgages, many landlords are benefiting from attractively low rates, so are being able to cash flow their properties well, even with rents not rising too much over the last five years,’ said Gonsalves.
‘However landlords need to make sure their properties have ideally a 75% Loan to Value (LTV) to take advantage of the best rates. Landlords also need to be aware of how their own rental income is tracking versus rents at a local level and whether they are keeping up with inflation,’ he explained.
‘If not, landlords need to be looking at how they can maximise their rental income. One thing which is important is to secure the right balance between investing money to keep the property well maintained and ensuring voids are kept to a minimum, so rents are maximised as much as possible,’ he added.
The Belvoir five year rental index analysed advertised rents on a simple three month from 139 offices across the UK, and the results broken down into national, regional and county levels.
‘This rental index report is very much aimed at helping landlords and tenants understand the rental market and how it is currently operating right across the UK rather than in pockets of London and the South East. We also hope that the Belvoir rental index, which will be released on a monthly basis during 2013, will assist government bodies in understanding the market and enable them to incorporate this information into their policy and decision making processes,’ said Gonsalves.
‘Our figures confirm that the rental market is still very much on the road to recovery with UK rents down by around 2.4% compared to the heights of five years ago. However, it also shows that the rental market is working well, with rents keeping in line with affordability,’ he added.