Housing rents rose for the sixth consecutive month to a new high according to the latest Buy-to-Let index from LSL property Services.
The index, which is based on a monthly analysis of 18,000 properties, saw the average rent in England and Wales rise by 0.6% over June’s Â£701 to a record Â£705 per month. This is Â£29 per month higher than July last year.
So, far from causing a housing crash bringing the cost of housing down for all, it seems that the economic difficulties are benefitting investors who are still the winners. Maybe now more than ever.
On a month by month basis rents rose fastest in the South East (1.7%) and declined in three areas, the West Midlands (-0.6%), Yorkshire & the Humber (-0.2%) and the Northwest (-0.1%).
On an annual basis the biggest rises were seen in London (7.1%), the North East (5.5%) and the East and West Midlands (4.8%). Wales is the only region where rents have remained static so has not seen overall rent rises during the year.
The average yield is also on the rise; up to 5.2% in July compared 4.8% a year before.
But as property prices fell, the total annual return (TER) on rental property dropped to 1.2%. But for those looking for a long term investment this may not be an issue. Looking to the future LSL expects this to settle at about 2.5% for the next year or so.
Despite tightening budgets and rising rents, tenant rent arrears fell from 9.3% to 9% over the month with unpaid rent falling from June’s Â£257 million to Â£251 million.
“Rents are on an upward trajectory, and it is unlikely that tenants will gain respite any time soon. Demand from thousands of frustrated buyers each month is underpinning buoyant competition for rental homes, enabling landlords to increase prices.” Said David Newnes, estate agency managing director of LSL Property Services, owners of Your Move and Reeds Rains “This is the peak summer season, with more renters on the move, the market will continue to heat up. Such strong demand and high rental incomes has forced lenders to take notice, and more are returning to the sector. As a result of the competition in the buyâ€toâ€let market, the range of affordable products is expanding – and lending to investors rose by 21% in the last quarter. Nevertheless, even with squeeze on landlord finance abating, the new supply will not be enough to meet demand from tenants.”
He went on to say that rising rents is preventing tenants from being able to save up for a deposit for a house of their own. The size of rental deposits is also on the rise to such an extent that even renters are sometimes having to turn to the bank of mum and dad for help. “…it is becoming increasingly commonplace for renters to get parental help to fund their first deposit on a rental home, with the typical one month deposit on a property in London more than Â£1,000. Said Newnes.
I see a future of more and more houses being converted into small flats or even bedsits or maybe ‘homes of multiple occupancy’ in order to cater for demand. Why should investors put their money into housing that won’t sell because no-one’s got a deposit or cant’ get a mortgage? Far easier and more profitable to cram more people into the available space and charge them more for it.
And be in no doubt that the government is going to sit back and watch it happen.