The average residential rent in England and Wales is now over £800 per month for the first time. In July, rents had risen at the fastest monthly rate since records began in 2009.
Rent prices hit record highs in Yorkshire and the Humber, the East Midlands, West Midlands and unsurprisingly, London, according to the latest buy-to-let index from Your Move and Reeds Rains.
Month-on-month, rents in England and Wales increased by 1.9% to £804 in July, from £789 in June and up 6.8% annually – the largest annual rise on record.
However, the report stated that surprise growth in the South East (3.3%), the North West (1.4%) and the North East (1.3%), shows that the northern rental market is starting to mirror the momentum experienced down south.
Director of Your Move and Reeds Rains, Adrian Gill, explains: “With the East showing accelerating rental growth for well over a year, the area has now paused to let off a little steam.
Rents and Rental Yields on the Rise
“It’s interesting to see that the South East has jumped in to take up the slack, neck and neck with London, jostling for pole position in monthly rent rises. It shows the effect that the high-density capital is having on the surrounding areas as people move further out in search of affordable homes.
“The Midlands, too, are starting to show some serious purpose as the workhouse of the East eases back. As investment in the northern powerhouse starts to mature, we’re going to see more and more people looking for the flexibility offered by rental accommodation as they move in search of the jobs springing up outside of London, especially in high growth areas like Yorkshire.”
The index also reveals that the gross yield on the average rental property in England and Wales increased to 5.2% in July, the first significant rise since March. It compares to 5.1% in June and 5% in July last year.
However, total annual returns dropped in July. Typically, landlords have experienced returns of 8.7% over the year, down substantially from 10% in June and 12.5% in the year to July 2014.
Therefore, landlords in England and Wales have made a return of £15,632 in absolute terms, before deductions such as maintenance and mortgage payments. Capital gains accounted for £7,188 of this and rental income made up £8,444 of the total.
Gill continues: “House price growth is easing back and this has had an effect on total annual returns. However, rental yields are perking up to compensate. The mortgage market has stabilised after a post-election bounce and the current political stability makes for clear sailing in the buy-to-let market, despite the chronic housing shortage.
“With mortgage repayment rates so low and returns still remarkably enticing, there’s rarely been a better time to invest in rental properties.”
The level of rent arrears has also improved, accounting for 8.4% of all rent payable in July, down from 8.7% in June, but still higher than the 7.3% seen in July last year.
Gill says: “July has seen us head back down the path towards greater financial security. It’s true that any rise in arrears is a setback, but the greater trend is clearly towards tenants in better control of their finances.
“The question isn’t if we’re able to improve the proportion of rent that falls into arrears, but how quickly we can improve it.”1
Founder of Platinum Property Partners, Steve Bolton, claims that rental demand is rising, as more people prefer the flexibility of renting. But he also believes that growing costs could affect this trend: “Although growing wage packets should help renters to cope with rising costs, some may start to find meeting their rental bill a struggle.
“Rents aren’t likely to fall any time soon, particularly as landlords face a number of increasing costs. When interest rates eventually rise, landlords will have to shoulder higher mortgage repayments and the cap on mortgage interest tax relief threatens to shrink profits when it is introduced.
“Some landlords who are already struggling to break even may therefore be tempted to increase their rents as a way of regaining profit.”
He adds: “However, instead of passing these costs onto their tenants, landlords should focus on analysing their investment strategy. Maximising rental income is the best way of building a sufficient buffer against rising costs.”1