The rise means rents are the highest they have been since September 2008.
The average UK rent is now £686, 2.5% higher than the same time last year, following seven consecutive months of rises and an increase of 0.5% in July. The average yield rose from 4.8% in July to 4.9% in August.
David Brown, commercial director of LSL Property Services plc comments:
“Rents are jumping up as more and more potential home buyers opt to rent. People are wary of a crash in house prices and concerned over the effect of government cuts on their own ability to meet long-term financial commitments. Additionally, many can’t get a mortgage at an affordable rate.
“Furthermore, the huge number of reluctant landlords we saw renting out property last year have now had the opportunity to bank their gains and sell up. That’s cut into the supply of rental accommodation.
All these factors have shifted the power back into the hands of landlords, driving up rents.
“With conditions still tough for first-time buyers in terms of getting finance, in the short to medium term, renting will continue to be the preferred option for many. We wouldn’t expect rents to move back down again until mortgage products become more attractive. Until this happens, landlords remain in a position of strength.”
Rent increases were led by landlords in the South East and London. In these areas average rent went up by 2.8% and 2% respectively, whereas landlords in the West Midlands and Wales found themselves forced to reduce rent by -1.5% and -1% respectively.
Brown explains:
“Summer often brings with it regional disparities and landlords in the South East and London this year were able to capitalise on the rising mercury, which can add seasonal value to their properties. Young people heading to university at around this time further energise the market as high demand puts upward pressure on prices.”
August also brought with it a sharp rise in tenant arrears, with arrears totalling £266.3m, or 11.3% of all rent in the UK. This is up 25% from £212.9m (or 9.2%) in July. 507,131 tenants fell into arrears in August, 72,327 more than in July. The rise in arrears means that the average yield, adjusted for voids and arrears, was unchanged since July at 4.5%.
The increase in tenants arrears was largest in the North East, where unpaid rent rose from 10% in July to 14.4% in August – the biggest increase of all the regions. Recent research commissioned by the BBC found the North East to be the region of the UK most exposed to government cuts and economic hardship, affecting tenants’ ability to pay rent.
David Brown explains:
“Rents have been rising all throughout this year but they haven’t affected tenant arrears until this month. But now arrears are up - in fact they are rocketing in the North East. Tenants everywhere are only going to come under further pressure as the cuts keeps coming, but it’s possible we’ll see a significant north-south divide develop.
"The North East is also where yields for landlords are amongst the lowest. That won’t encourage new landlords to invest there, this could mean less competition and no downward pressure on rent.”
The rise in rents alongside house prices remaining static for three months means that an investor buying property now could expect a total annual return of 9.3%, the equivalent of £15,711.
David Brown concludes:
“Rents have been recovering and are now just short of their peak two years ago. With house prices static, yields are on the up, but investors should do their homework diving into property investment. No one knows where the economy is going next and a shock may be around the corner.
"That said, demand for rental property is strong. With a sensible investment model and understanding of regional conditions, the laws of supply and demand can be used to a landlord’s significant advantage.
Richard Sexton, director of business development at surveyor e.surv said:
"Renting is the only real option for many individuals unable to obtain mortgage finance, there is also a greatly diminished supply of mortgage products aimed at landlords. This is suppressing the growth of stock in the sector, which in turn is driving rents up.
"Specialist providers such as CHL, Paragon, and BM Solutions are currently almost entirely absent from the market, while mainstream lenders are treating buy to let lending with caution. Demand, therefore, is building for these products and this may be an area where prudent lenders, with an appetite to support the sector, can increase their profit margins."
