Rents across England and Wales are rising faster than at any point in the last five years, according to the latest Buy-to-Let index from Reeds Rains and Your Move.
The average rent for England and Wales is now £794 per month, 3.4% higher than at the beginning of 2015.
According to the index yields on buy-to-let properties have decreased due to rising property prices but total annual returns hit a 12 month high at 11.3%
However increasing rents on families have also meant many tenants feeling the pressure over Christmas, with arrears rising to 9.3% of all rents due.
Adrian Gill, Director of estate agents Reeds Rains and Your Move said: “Rents reacted strongly in 2015, powered by welcome warmth from household earnings, and growing pressure from supply – the more troubling lack of housing in the UK. The combined force is skywards for rents.
“Such growth in rents is a mixed bag. The fact that the majority of tenants can afford higher rents is certainly good news, and should be seen as a positive indicator as we enter 2016. Yet over the longer-term, higher rents also raise a serious challenge for the future affordability of housing in this country. Everything else will need to keep up.
“Back in 2013 we predicted that rents would hit £800 in mid-2015 – unless there was some form of dramatic shift in the supply of homes to rent. And right on cue, last summer average rents across England and Wales pushed through that mark to reach £804 in July 2015 – before topping £816 in September’s peak market. This indicates that very little has structurally changed in the rental market since 2013, aside from the same steady growth of volumes – led by demand.
“Last year also demonstrated how the cost of renting a home has begun to diverge from the wider cost of everyday living, as measured by standard rates of inflation. Again this demonstrated that maintaining the success and the current affordability of private renting will depend on the main issue at hand – getting more properties onto the market.
“Into 2016, all layers of government, regulators and lenders should be taking every opportunity to help the flow of much-needed investment in buy to let – far from some of the recent political moves to discourage landlords.”
The rise in average rents is far from uniform across the UK however, as while East of England rents rose 7.8% and London rents 6.3% and the West Midlands and Yorkshire and Humber hit record rent highs, both Wales and the South East saw rents fall at 1% and 2.6% over the past twelve months respectively.
In terms of yields, the gross yield on a typical rental property in England and Wales dropped to 4.9% in December, down from 5.0% in November 2015. On an annual basis, this is fractionally lower than the 5.1% gross yield seen a year ago in December 2014.
Adrian Gill continued: “Existing property investors are seeing the paper value of their portfolios rise considerably, as purchase prices accelerate. Rents are rising too, but not yet at the same pace as the purchase market – inevitably pushing yields down a little.
“This means that landlords considering new investments will have a marginally more careful job to do of balancing their rental income with all of their expenses – including a potentially larger mortgage as prices rise. So higher purchase prices will be another factor on top of the much-discussed tax changes of the last six months.
“However, this is also an indication that rents have capacity to rise faster. Gross yields have not been this low for more than five years. In the next couple of months, there will likely be a surge of investment ahead of the April deadline to beat the Chancellor’s new buy to let stamp duty surcharge – but beyond that and into the rest of 2016, lower yields may cool investment from landlords. Slower growth in homes to let beyond April, in the face of a steady march of new demand from tenants, is likely to continue to push rents higher.”
