Rents surge across UK in June as supply diminishes
16 July 2010
Constraints in supply bolstered both rents and yields in June, according to the latest Buy-to-Let Index from LSL Property Services plc. The average rent in the UK rose by 1% in June. Rents have risen for five successive months, and are 3.2% higher than a year ago – the equivalent of £23 more per month than a year ago. The average rent is now £673 per month, the highest level since November 2008.
David Brown, Commercial Director of LSL Property Services plc, comments:
“Rents have continued their upwards trajectory, and are just a few pounds away from their peak levels in 2008. The seasonal pick-up was exaggerated by the squeeze in the supply of rental accommodation.
"Although landlords weren't clobbered as badly as feared, it is possible that some left the market in the run-up to the budget, and concerns over the new capital gains tax rate dampened the number of new investors entering the market in June.
"But the restricted availability of buy-to-let mortgage finance has been the underlying factor holding back investment in the sector and the number of new rental properties hitting the market.”
London continued to lead the surge in June, with rents in London rising by 1.9% to £942. Landlords in the north also had reason for cheer as rents rose in both the north west and north east - by 1.4% and 1.3% respectively. However the west midlands bucked the national trend, recording a drop of 1.7%.
Brown continues:
“London rents have climbed for five consecutive months, and there is no sign of a slowdown. There is an acute lack of affordable housing in London, and would-be buyers cannot afford the rising house prices – or get big enough mortgages. The increasing reliance on rental accommodation in the capital, combined with the constraints in its supply is pushing up rents faster than anywhere else in the UK.”
As rents continued to increase, and house prices dropped off in June, yields on buy-to-let properties snicked up to 4.9%. The house price for the average rental property fell by 0.25% compared to May, with the rate of annual increase slowing to 8% in the past 12 months.
The total return from investing in buy-to-let over the last twelve months fell slightly to 12.3% in June as house prices fell slightly. The average landlord would have made £18,983 in the past year – a combination of £7,164 in rent and £11,819 in capital gains.
With the recent house price decreases, a landlord investing today can expect to make an annual return of 3.4% over the next twelve months. This is equivalent to £5,670 on a typical UK property.
David Brown comments:
“The recent changes in property values demonstrate just how vital it is for potential landlords to prioritise rents and tenant demand when investing. With house prices unlikely to climb significantly in the short-term, rental income will be driving landlords' returns – as well as paying their mortgages.”
Tenant arrears fell in June. £234m of all rent in the UK was unpaid – a decrease of £10m from May. This represents 10.1% of all rent in the UK – down from 10.7% in May.
David Brown continues:
“Increasing the Capital Gains Tax rate to 28% was an unpopular measure amongst landlords and second home owners. But it could have been a lot worse, with a 40% rate on the cards. And the blow has been softened somewhat by the improving market conditions for landlords.
"Yields are on the rise, and tenant demand is strong enough to push up rents. With tenant finances in good order, an investment in property will still bring healthy annual returns.”
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