Tenants feel the festive pinch despite rental reprieve

Rents in December fell to levels last seen in August 2012 as landlords looked to avoid empty properties, according to the latest Buy-to-Let Index from LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

The average rent in England and Wales fell by 0.9% in December to £734 per month. Despite the seasonal fall, rents in December were 3.2% higher than a year ago, just below the 3.4% annual inflation of November.

Seven regions saw rents decrease in December compared to November. The joint-largest falls were in the East of England and North East, where rents dropped by 1.7%. These were closely followed by London were rents fell 1.5% and the South East with a 1.3% fall. Three regions saw monthly increases; the fastest rise was in the West Midlands, where rents posted 1.3% growth. Next was the South West, with a monthly rise of 0.9%, while rents in Wales crept up by 0.4%.

On an annual basis, rents remain higher than a year ago in eight out of ten regions. London has seen the largest annual rise (6.3%) followed by the South East where rents were 3.9% higher than the previous December. This comes despite lower rents than a year ago in the East Midlands and Wales – with falls of 1.2% and 0.8% respectively.

David Newnes, director of LSL Property Services, owners of estate agents Reeds Rains and Your Move, comments: “Rents may have returned to August levels but it’s a seasonal blip rather than an about-turn in the market. Tenants were in a stronger bargaining position as landlords reduced rents to fill empty properties in the slower winter months, yet as the New Year progresses the underlying weakness in the mortgage market will mean competition will heat up once more. Long-term problems remain for new buyers looking to leave the rental market, and Funding for Lending is proving a double-edged sword. While rates are coming down for those with large deposits, extremely low saving rates are hitting those still trying to pull together a deposit – a problem accentuated by the record low base rate.”

Alongside rises in property values over the year, annual rental inflation means the total yearly return on a rental property grew to 6.2% in December. This represents an average return of £9,986 with rental income of £7,835 and a capital gain of £2,150.

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 4.3% per property over the next 12 months – equivalent to £6,994 per property. The average yield on a rental property was 5.4% in December, compared to 5.3% a year ago.

Newnes comments: “So long as there’s an underlying shortage of mortgage finance at high LTVs and a shortage of property being built, there’ll be people queuing up to rent a home. There’s still a wave of renters who in previous decades would already be homeowners – and despite more products for first-time buyers becoming available, criteria remain strict. Stronger lending at lower LTVs is helping landlords cater for these people, but can’t clear the five year old backlog of demand that will underpin rental yields. Landlords have also seen capital gains coming back into play in several areas, particularly in London where this is a large part of the average landlord’s £26,000 total annual return.”

The total amount of rent late or unpaid grew to the highest level since August 2012, with total arrears of £326m, up from £241m in November. This equates to 10.1% of all rent across England and Wales, while November’s arrears represented 7.4% of all rent.

Newnes concludes: “After two months of improvements, the festive period has taken its toll on tenants’ finances. December always sees a step backwards, and last month was no exception as the total amount of rent owed hit levels not seen since last Christmas. In the absence of real salary increases in 2012, the additional burden of higher rents was met by tenants cutting back on other essentials. But over December, the month’s extra spending has led to many more falling behind again. In the longer term, with rents likely to rise, falling arrears will be tied to the labour market moving forwards, rather than retreating.”


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