Rents rising at quickest pace since 2011

Rents across England and Wales increased by 3.4 per cent in December taking the average to £794 a month, according to latest buy-to-let index from Your Move and Reeds Rains.

On an annual basis, rents increased in eight out of 10 regions led by the East of England with a rise of 7.8 per cent, London was up 6.3 per cent, and the East Midlands up 4.7 per cent. Rents dropped by 1 per cent in Wales and by 2.6 per cent in the South East.

The figures also reveal that Yorkshire & Humber and West Midlands both saw rents reach a record high in December.

The rent increases recorded in 2015 came about despite a month-on-month fall in the latest market rents, dropping 0.6 per cent between November and December.

Average rents are now £22 per month below September’s all-time record high of £816pcm, reflecting a softening in tenant demand in the run-up to Christmas.

A breakdown of the data reveals that six out of 10 regions monitored saw rents decline on a monthly basis, led by London, with rents down 1.6 per cent.

By contrast, Wales saw a 1.8 per cent increase in rents. They also rose by 0.9 per cent in the South West, while Yorkshire and Humber and the West Midlands both saw a 0.3 per cent hike.

Adrian Gill (left), Director of Reeds Rains and Your Move, commented, “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.”

The index also revealed that the gross yield on a typical rental property in England and Wales, before taking into account factors such as void periods, dropped to 4.9 per cent in December, down from 5 per cent in November 2015. This is also marginally lower than the 5.1 per cent gross yield recorded in December 2014.

Taking into account both rental income and capital growth, the average landlord in England and Wales has seen total returns of 11.3 per cent over the course of 2015, up from 10.4 per cent in the 12 months to November 2015 and the highest for a year.

In absolute terms this means that the average landlord in England and Wales has seen a return of £21,110, prior to any deductions.

Although rents are rising, they are not doing so at the same pace as the purchase market, but Gill believes that could soon change.

“Rents have the capacity to rise faster,” he explained. “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.”

Gill continued, “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. There is some potential short term benefit to rising property prices. Conceivably, this might help some existing landlords to grow their portfolio, remortgaging to unlock fresh capital and continue to make use of low interest rates,’ he pointed out.

“But over any period of time one thing is fundamental and that is that higher property prices will ultimately be expressed in higher rents, both of which demonstrate a shortage of housing in the UK.”