Rents up 0.6% in May
According to the latest buy-to-let index from LSL Property Services plc, despite this relatively large monthly leap, annually rent increases have not kept pace with inflation, rising just 1.1% in a year when the Consumer Prices Index rose 1.5%.
David Brown, commercial director of LSL Property Services, said:
“Private renting is becoming cheaper in real terms. May’s latest sub-inflation rent rises will help over nine million tenants. To put that in context, this is more than a hundred times as many households as have benefitted from Help to Buy in its initial stages so far.
“These trends put the recent politicisation of the rental market in stark contrast to reality. Rents are not a single pound higher than they were in December – yet over the same six months some politicians have portrayed the industry as facing some sort of crisis.”
As ever, national averages belie a more patch regional picture, with rents rising in seven regions and falling in three.
Rents rose fastest in the South West (3.9% a year), the East Midlands (3.8%) and the North West (2.3%). In the South East rents were up 1.2% on the year and in London rents were 1% higher in May this year than last.
In three regions rents have dropped over the last twelve months. This was led by the North East with a 3.6% fall, followed by an annual fall of 2.3% for rents in the East of England, while rents are now 0.4% lower than a year ago in the West Midlands.
In terms of yields on investment, in May gross yields on a typical rental property were 5.1%, the same as April but slightly down on May 2013 (5.4%).
However, taking into account price growth alongside void periods between tenants, total annual returns on the average rental property have reached a four year high. Total annual returns of 12.2% in the twelve months to May are up from 5.3% in the twelve months to May 2013, and are now at the highest level since June 2010, when total annual returns previously peaked at 12.4%.
As a result the average landlord in England and Wales has seen a return of £20,133 in the last twelve months, with rental income of £8,107 and capital gain of £12,026.
If rental property prices continue to rise at the same pace as over the last three months, the average buy-to-let investor in England and Wales could expect to make a total annual return of 13.4% over the next 12 months, equivalent to £23,718 per property.
Tony Bennett, managing director of Platinum Property Partners (PPP) said: “Average rents are once again picking up pace, but there is no suggestion the market is out of control. On the contrary, with rents rising below the rate of inflation over the last year tenants can actually take solace in the fact the cost of their accommodation is relatively stable compared to other living costs.
“Buy-to-let investors will be pleased to see some growth and in fact many are enjoying a cocktail of rising house prices, more stable rents and fewer late payments. This is growing the income these investors are making from their buy-to-let properties and further increasing the allure of buy-to-let to investors as an alternative income stream.
“It’s crucial though that potential buy-to-let investors don’t rush into the market without first doing their homework. Buy-to-let property can offer a relatively secure income stream as either a boost or replacement to regular income or pension but it needs to be approached correctly. It is essential buy-to-let investors safeguard their investment and avoid the common pitfalls by acquiring expert advice to ensure they’re entering the market with their eyes fully open. “