Rising Rents for Tenants for Third Consecutive Month

According to Buy-to-Let Index figures released by LSL Property Services plc, tenants have seen a rise in rent for the third month in a row. In June, rent averages rose to £718 per month in England and Wales, up 0.9% on May’s figures. With the figure almost reaching that record high of a £720 monthly rate that was reached in October 2011, concerns are being raised within the rental market.

In London, rent rose by 0.9% to a staggering £1,047 per calendar month, hitting an all new high, while rents fell by 0.3% in the South West. Elsewhere, Wales saw the greatest rise in a 2% increase, closely followed by the 1.7% rise seen in the West Midlands and North West.

Since June 2011, tenants in London can expect to be paying, on average, an additional £41 a month, climbing 4% to leave London as the fastest annual rental growth region. The South West also saw a similar rise, with tenants being expected to pay 3.6% more per month than they were this time last year.

Speaking about these latest figures, LSL Property Services director, David Newnes, commented: “The sheer weight of tenant demand continues to push up rents across the country. Lending criteria remains tight and the number of mortgages given to first‐time buyers – especially those without substantial deposits – is still a long way from the level seen before the credit crunch. With higher rents and the growing cost of living eroding how much tenants can save towards the large deposits required to buy, it’s no surprise to see the private rented sector swelling by 262,000 households a year.”

“But shorter‐term factors were also at play in June. The rental market tends to see a flurry of activity at this time of year as tenants look to move before the onset of summer holidays, but this trend has been exacerbated – especially in London – by tenants moving with urgency to secure properties ahead of the disruption of the Olympics.”

In June, a landlord’s rental property could be expected to give a 5.4% rise in the total annual returned, compared to the 5.2% seen in May. Put into figures, this means the average return is £8,884, leaving landlords with a £1,166 capital gain and rental income of £7,719.

Experts have said that if this trend continues as it has for the past three months, a total annual return made by investors in Wales and England could be as much as 7% per property for the next 12 months, which would equate to £11,538 a property.

Newnes continued; “Property prices have stabilised over the past quarter and that’s played into the hands of investors, boosting returns. But the picture is far from even across the country. Stronger capital gains mean London landlords are seeing an average return £27,005 – more than three times the average for England and Wales in cash terms.

“However, while capital gains are a welcome short‐term bonus for landlords, it is strong yields that are drawing in long‐term investors. With interest rates so low, mortgage payments are still historically very cheap, and in many cases landlords have a surplus at the end of the month to put towards a rainy day fund or reinvestment.”

A total of £289m was calculated in unpaid rent this June, increasing by 5% on the £275m of late/unpaid rent seen in May.

Newnes also went on to discuss the importance of a balance between the rent charged by landlords and the realistic amount tenants will be able to pay back over a long period of time. Higher rents could leave landlords facing arrears on their mortgages should the continued recession leave many tenants unable to meet their rental charges.

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