Rents across England and Wales have reached a new record of £770 per month, up 1.5% over the last 12 months, according to the latest buy to let index.
Tenants have paid down rent arrears despite the new record for monthly rents in October, the index from the UK’s largest lettings agent networks, Your Move and Reeds Rains, also shows.
On a monthly basis, rents in October 2014 rose 0.3% but the October rise follows faster average rent rises of 1.9% in the previous 12 months ending October 2013, and rental growth of as much as 3.4% over the preceding year.
‘Rents have edged to a new record and the rental market is pulsing with new demand. Yet at the same time, tenants are getting on top of their finances helped by a cooling pace of such rent rises,’ said David Newnes, director of estate agents Reeds Rains and Your Move.
‘Better affordability is good for tenants in the longer run too and for landlords who can rely on steady revenue to pay the bills. That helps to support a virtuous cycle of only gradual rent rises. Alongside slower overall inflation, a material boost to the supply of properties available to let has helped keep rents from rising as quickly as in previous years,’ he added.
Overall tenant finances improved in October, with just 6.9% of all rent in arrears, down from 7.2% in September and 7.1% in October last year. Rent arrears are also just 0.3% above the record low 6.6% set in November 2013.
In absolute terms this represents £244 million in late rent in October, down from £256 million in the previous month or a drop of £12 million since September.
Levels of the most severe tenant arrears have also improved. Households facing rental arrears of more than two months now represent just 1.4% of all tenancies, compared to 1.6% in the third quarter of 2013, according to the latest quarterly Tenant Arrears Tracker from Your Move and Reeds Rains.
‘Tenants have battled a broadly stagnant jobs market for years. Recent progress on the unemployment rate has helped bring down the most serious cases of rent arrears. But for others consistently falling just a little behind on the rent, the trouble is more with incomes that just haven’t kept pace with the cost of living,’ said Newnes.
‘Instead of wage growth, a growing supply of homes to let and much slower rent rises have been far more useful in tackling the proportion of households falling behind. Looking ahead, if more homes to rent can coincide with a true renewal of real wages, this could prove a powerful combination and would take rent arrears even lower,’ he explained.
A breakdown of the figures shows that rents in nine out of 10 regions of England and Wales are higher than a year ago. Leading all other regions, the East of England has seen rents rise by 4.9% in the last 12 months, followed by annual rises of 3.6% in the neighbouring East Midlands, and 3.1% in the North West.
By contrast, London rents have grown the slowest, up just 0.5% compared to October 2013, while annual rent rises were 0.7% in the South West. However these regions have both seen more buoyant rises than the North East, with rents 0.5% lower than 12 months ago and the only region to see an annual fall.
A majority of regions have also seen higher rents on a monthly basis. However, rents in four regions were lower in October than September, in contrast to the previous month which saw no regional monthly falls.
London and the North West both experienced month on month falls of 0.3%, followed by the North East where rents in October were 0.2% lower than September, and Yorkshire and the Humber with a 0.1% monthly drop.
The gross yield on a typical rental property in England and Wales now stands at 5.1% as of October, the same as in September 2014, but representing a fall of 0.3% from this point last year, when yields in October 2013 stood at 5.4%.
Taking into account price growth and void periods between tenants, but before costs such as mortgage repayments or maintenance, total annual returns on an average rental property now stand at 13.3%, over the 12 months to October. This represents a return to the same level as was reached in August 2014, the joint highest on record.
By comparison, total annual returns were considerably lower over the preceding 12 months, at 8.2% in the year to October 2013.
In absolute terms this means the average landlord in England and Wales has seen a return, before deductions such as mortgage payments and maintenance, of £22,434 in the last 12 months. This is made up of rental income of £8,404 and an average capital gain of £14,030.