In June, the average rent in England and Wales rose by 0.7% to £701 per month, surpassing the previous high of £696 in May.
With an annual inflation of 4.1%, the average rent is now £28 per month higher than June 2010. As a result of dipping house prices and increasing rents, the average yield reached 5.2% in June, up from 5.1% in May.
Over the course of the last year, London’s rents have climbed faster than any other region of England and Wales. In June, rents broke through the £1,000 per month barrier for the first time, reaching a new high of £1,006 per month – an annual increase of 6.9%.
The next biggest rises were in the North East, and the West Midlands where rents increased by 5.1% and 4.6% respectively. In the last year, average rents have only fallen in the East of England, where they fell by 0.3%, compared to an annual fall of 1.2% in May.
On a monthly basis, rents increased the fastest in the West Midlands and the East of England, rising by 2% and 1.6% respectively compared to May.
Rents declined in three regions – the East Midlands, where they fell by 0.5%, the South East and Yorkshire & The Humber, where rents fell by 0.2% and 0.1% respectively.
David Brown, commercial director of LSL Property Services comments:
“Tenant demand continues to reach ever higher peaks – and there simply isn’t enough rental property coming onto the market to match it. In areas like London where competition for rental property is most intense, it’s not unheard of for rental properties to be let within a day of coming on to the market.
"We’ve had five successive months of rent rises, but there is no sign of a let-up anytime soon. Despite several new deals on the market, securing a big enough mortgage remains a tall order for the average buyer.
"The climbing cost of living and renting is impacting how much renters can save for their deposit, and demand will remain high in short-term.
“In the long-term, there is an even smaller chance of a significant slowdown. Just 102,570 new homes were completed last year – at a time when the UK’s population increased by nearly half a million.
"This trend shows no signs of slowing. Excess demand will be driven into the private rental sector driving rents up further. Landlords thinking long-term will do well.”
The total annual return on a rental property was 1.3% in June with high yields offset against an annual decline in rental property prices. The total annual return is the equivalent of £2,203 - £7,486 in rent, with a capital loss of £5,283.
If property values continue on their current trend, a property investor could expect to make a total annual return of 2.3% over the next 12 months – equivalent to £3,776 per property.
David Brown continues:
“Home values have been dropping in recent months, and this has taken its toll on annual returns. But record high yields paint a prettier picture for prospective landlords, and matter much more in the short-term as it is rent that pays the mortgage.
"As property prices bottom out and rental income soars, property investment is proving to be an increasingly lucrative long-term investment. In the last 12 months alone, the average yield achieved per property has jumped from 4.8% to 5.2%.
"The foundations are there for profitable investment, but lenders must do more to improve buy-to-let mortgage lending to bring needed investment to the sector, widening the supply of rental accommodation.”
Tenant arrears decreased for a second consecutive month, with 9.3% of all UK rent unpaid or late by the end of June – down from the 11.5% of rent unpaid or late in May.
Unpaid rent totalled £257m across the UK in June, down 18% from the £315m unpaid in the previous month .
Brown concludes:
“Tenant finances took a turn for the better in June. We tend to see an improvement at this time of the year – and witnessed a 5% drop this time last year. But the improvement has been exaggerated by a change in behaviour from many landlords.
"With rents rising so quickly, many landlords are being less forbearing with tenants showing signs of payment difficulties, and are looking to replace them in expectation of higher rental income. Despite this, we expect arrears to rise in the coming months.
"We’ve yet to see the full effects of public sector job losses, and as inflation remains high, many tenants’ finances will face mounting pressure over the medium-term.”
Paul Jardine, receiver and director of Templeton LPA, comments:
"Tenant arrears dropped markedly last month as landlords took a tougher line with renters showing early signs of payment difficulties.
"In a market where demand is at an all-time high, and rents are rising, many landlords are less concerned about potential void periods and are looking at the increased rental income they may get from a new tenant.
"Nevertheless, we do expect rental arrears - and buy-to-let mortgage arrears - to climb once more as the year progresses. Inflation remains high, and the full scale of public sector job losses has yet to hit home.
"As many household finances suffer from changing employment situations and rents rise further, there will be an inevitable rise in the number of tenants experiencing severe difficulties in meeting the monthly rent cheque."
