- Rents rise 1.6% in twelve months – compared to 0.8% annual growth in weekly earnings
- Average rent in England and Wales now stands at £753 per month, despite seasonal dip
- Landlords see record 8.9% total return over last twelve months, or £14,592
- Tenant finances improve in time for Christmas, as proportion of late rent drops to 6.6%
Rents have risen at twice the annual rate of weekly earnings, 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.
Average rents across England and Wales now stand at £753 per month as of November, up 1.6% compared to November 2012.
By comparison wages have risen by just 0.8% on an annual basis. Average regular pay before tax stands at £1941 per month, according to the latest official figures.[1]
Rents across England and Wales remain significantly higher than a year ago, despite a recent seasonal drop of 0.7% (or approximately £5) in the month since October 2013.
November also witnessed annual growth in lettings activity. The number of new tenancies agreed across England and Wales increased by 1.5% compared to November 2012. This was despite a slowdown on a monthly basis, with 6.3% fewer new lettings than in October.
David Newnes, director of LSL Property Services, owners of estate agents Reeds Rains and Your Move, comments: “Economic reality now resembles the most optimistic dreams of last year. But for so many households, the dream of homeownership is still relegated to the imagination.
“It’s not just wages. Savings rates have been swamped by inflation for half a decade – so building up even a 5% deposit is a real struggle. Help to Buy is having a perceptible impact, with thousands of first time buyers benefiting already. Yet millions of new households have joined the queue at the bottom of the housing ladder – and private renting is the only tenure to have taken up much slack.”
Rents by region
Eight out of ten regions saw rents fall on a monthly basis between October and November, in line with a monthly fall across England and Wales as a whole.
The sharpest monthly drop was in the West Midlands, with rents down 2.6% since October. This was followed by a fall of 1.8% in the South East and a 1.3% monthly decrease in the East of England.
However, the South West experienced rent increases of 1.1% between October and November, while rents in Wales also rose slightly on a monthly basis, up by 0.2%.
On an annual basis, London saw the steepest rent rises – 4.4% higher than in November 2012. This was followed by a 3.4% annual increase in the South West, while rents in the South East are 3.2% higher than twelve months ago.
Meanwhile, rents in the East of England have fallen by 5.5% (or £42) over the last year. This was followed by a 2.8% annual drop in the West Midlands, while rents in both the North East and Yorkshire and the Humber are 2.0% lower than November 2012.
David Newnes, director of LSL Property Services, owners of estate agents Reeds Rains and Your Move, comments: “Economic recovery is spreading throughout the UK. And the property market is the leading edge of that wave. As the home purchase situation heats up, the effect on the rental market is even less uniform – with rises accelerating in some areas and slowing in others. Across the UK, every town and city is its own market, and requires local knowledge.”
Yields and Returns
Gross yields on a typical rental property remained steady at 5.3% in November, consistent with the past three months. However, taking into account capital accumulation and void periods between tenants, total annual returns on an average rental property rose to 8.9% in November. This is up from 8.1% in October – with the increase due to accelerating house price rises. In absolute terms this represents an average return of £14,592, with rental income of £8,243 and capital gain of £6,349.
If rental property prices continue to rise at the same pace as over the last three months, the average buy-to-let investor in England and Wales could expect to make a total annual return of 10.5% over the next 12 months, equivalent to £17,294 per property.[2]
David Newnes comments: “Over twelve months the availability and affordability of buy to let finance has achieved a quiet revolution – with a very real effect on the private rented sector. Demand for homes to rent is still soaring, yet heavy investment by landlords in 2013 has brought rent rises in most areas below inflation. In 2014, one thing will remain certain – demand from new tenants will continue to grow. Supply of new homes to rent will be critical in maintaining relatively affordable annual rent rises, compared to rampant house prices.”
Tenant Finances
Tenant finances improved in November, with the total amount of late rent across England and Wales reaching a new record low of £228 million. Since November 2012 the total amount of late rent has fallen by £20 million. As a proportion, such tenant arrears now represent 6.6% of all rent, down from 7.1% in October, and significantly lower than 7.4% of all rent in arrears in November 2012.
David Newnes concludes: “Homes of all tenures have become more expensive for most people. That’s partly because the UK is poorer than it was five years ago, with wages only gradually struggling to recover. But more fundamentally, housing is also becoming more expensive because there aren’t enough homes to keep up with an expanding population.
“Building more homes at a serious pace is the only way to avoid the risk of stagnation in the housing market – the property industry cannot grow by competing ever more fiercely over fixed resources. But to make new homes affordable they will also need to be purpose built for all tenures. Private renting has been growing for decades, and new supply will need to cater for the sector for decades to come.”
[1] Office for National Statistics data, updated 18/12/13: http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/december-2013/index.html
[2] Assuming house prices change at the average rate of the last three months and they achieve the average yield of 5.3%.
The Wriglesworth Consultancy 