Rents up by an average of 3% across England and Wales year on year
Rents in England and Wales have increased by an average of 3% over the last year to £791 per month, according to the latest buy to let index. Record rents were recorded in the Midlands while rents fell in Wales and the North East, the data from the Your Move and Reeds Rains index also shows.
On a monthly basis March was a relatively subdued month, with the level of average rents the same as was seen in February. Month on month rent growth has dipped marginally from 0.1% between January and February 2016 to a flat 0% between February and March 2016, reported by Propertywire.
Leading the whole of England & Wales, rents in the East Midlands now stand 8.5% higher than in March last year, at an all-time record high of £613 per month. This is followed closely by the West Midlands with 6.7% annual rent rises, taking the average rent in the West Midlands region to a separate all-time record of £597 per month.
London is in third place in terms of annual rent rises, up 4.6% from the same point last year. However at £1,231 the capital’s average monthly rent remains below the all-time record of £1,301 set six months ago in September 2015.
At the other end of the spectrum Wales and the North East are host to annual rent falls, both dropping by 2.2% since March last year. This takes rents in Wales to £551 per month and rents in the North East to £507 per month in March 2016.
On a monthly basis the East Midlands matches the South East with a 0.7% month-on-month rise in rents, followed by the East of England where rents have risen by 0.6% between February and March.
Meanwhile, taking into account both rental income and capital growth, but before property specific costs such as maintenance, the average existing landlord in England and Wales has seen total returns rise to 12.2% over the 12 months to March.
The index points out that this is a clear jump from 10.7% seen a month before, over the 12 months to February, and is also the fastest annual rate of return for existing landlords seen since November 2014, when the same measure last reached 12.3%.
In absolute terms this means that the average landlord in England and Wales has seen a return of £22,135 over the last year before any deductions such as property maintenance and mortgage payments. Of this, the average capital gain contributed £13,494 while rental income made up £8,641 over the 12 months to March.
While a recent surge in capital values has boosted total returns for existing landlords, the same trend has suppressed rental yields for those aspiring to become landlords, or looking to grow their property portfolio,’ the report points out.
As rents rise alongside property prices, rental yields are proving relatively resistant to rising purchase prices. However the gross yield on a typical rental property in England and Wales, before taking into account factors such as void periods, is now 4.9% as of March 2016, compared to 5.1% in March 2015.
Adrian Gill, director of lettings agents Your Move and Reeds Rains, explained that new tax changes intended to benefit owner occupiers are now making it more expensive to become a landlord, at least for the time being. ‘Ultimately this will only punish tenants and aspiring first time buyers, driving out buy to let landlords will reduce supply leading to lower choice and higher rents for those that can least afford them,’ he said.
‘In particular, this month’s new stamp duty surplus has driven an extra wedge between those aspiring landlords planning to invest in additional homes to let, and those existing landlords who have already built up their portfolios. That difference will not last for long. But by making it more expensive to invest in property, it will hamper the healthy growth of the private rented sector,’ he pointed out.
He believes that over the longer term there will still be a sharpening shortage of homes available, and rents will rise in line with any extra costs. ‘So being a landlord will remain a profitable investment, though tenants will just see unnecessarily higher rents in order to price-in the extra bill for the taxman,’ said Gill.
‘In the short term, there has also been a scramble to buy property before the deadline. As a result, a flurry of interest from property investors has boosted values, and delivered a bonus for existing landlords through faster capital growth. In search of political points, the Chancellor would do better to help tenants rather than punish landlords but the most ironic part of the new tax regime is the additional bonus to the wealth of current landlords,’ he added.
Paying the rent on time has become slightly more of a challenge for tenants in March, the index suggests. Across England and Wales the overall level of rental arrears now stands at 9.1% of all rent due in the private rented sector, compared to 8.8% in February 2016.
Tenant finances have also felt a setback compared to the same point last year. The latest arrears rate of 9.1% compares with 7.4% rent arrears in March 2015. Despite this, and on a longer term basis, levels of late rent remain more encouraging. March still compares very favourably to the all-time high of 14.6% of all rent payable in arrears set in February 2010.
‘Landlords need tenants with sound finances, and tenants need a property they can afford. While there is always room for healthy negotiation on rents, both landlords and tenants need each other to reach a deal. So some of the language of confrontation between landlords and tenants is not healthy or constructive,’ said Gill.
‘For private renting to remain an affordable option and a high-quality home for millions, the answer is more supply and more choice. That means lifting the barriers to investment in property, rather than adding fresh penalties for landlords aspiring for their own financial security,’ he explained.
He also pointed out that good landlords also understand that their interests and the interests of their tenants are aligned so a tenancy should be a mutually beneficial deal. ‘That takes expertise in managing a property and it takes commitment,’ he added.
‘The growth of private renting has changed society in terms of the number of people who are tenants, but it has also raised questions for those who now find themselves as landlords, either purposefully or in some cases through a relatively unplanned course of events. Managing properties well must include regular communication with tenants, to address concerns, arrange maintenance, and to avoid the possibility of rent arrears,’ Gill concluded.