A Great Time for Landlords as Rents Hit a High and Arrears Drop

It’s great news for landlords as rents in England and Wales rise for a fifth consecutive month in August.  The average rent rise was by 1.2%, meaning rents have reached a new high of £734 pcm.  In the same month, tenant arrears fell for the first time in three months, according to LSL Property Services Plc Buy-to-Let index.

Rents reached record highs in five regions (London, the South East, the East of England, the North West and Yorkshire & the Humber) in August.  London and the South East saw the fastest rent rises in comparison to August 2011, with rental inflation at 4.9% and 3.9% respectively. From an annual perspective, rents fell in two regions, decreasing by 1.9% in the South West, and by 1.8% in Wales.

David Brown, commercial director of LSL Property Services, said: “The rental market is right in the thick of its peak season, and the demand from graduates and those starting new jobs has added a new layer of competition on top of the existing pool of frustrated buyers.”

Landlords saw an average total annual return of 5.3% on a rental property in August, up from 5% in July. This represents an average return of £8,716 with rental income of £7,853 and a capital gain of £863.

If rental property prices maintain the same trend as the last three months, an average investor in England and Wales could expect to make a total annual return of 9.2% per property over the next 12 months – equivalent to £15,191 per property.   The average yield on a rental property remained steady at 5.3%, as slightly higher property prices were matched by higher rents.

Brown adds: “The government’s response to the Montague Report recognises the need to expand the supply of rented property, and supporting the building of new rental properties and encouraging institutional investment to the sector marks a step forward. However, it’s equally vital that lenders continue to support individual investors, who are being drawn in by the healthy yields, historically low mortgage rates, and strong tenant demand.”

Arrears fell for the first time in three months in August, with just 9% of all rent late or unpaid at the end of the month, a decrease from 9.3% in July.

Brown finishes: “It’s encouraging to see tenant arrears fall for the first time in three months, despite the summer holiday season. A surprisingly resilient labour market, alongside a more stringent approach to referencing and credit checking by landlords, has helped prevent further rental arrears. However, rental inflation is still outstripping the growth in wages, and this will keep up the financial pressure on many tenants’ monthly budgets.”

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