Rents slowed their downward pace in February, according to the latest Buy-to-Let Index from LSL Property Services plc.
Compared to January, the average rent in England and Wales fell by 0.1 per cent, to £731 per month. However, due to a smaller monthly drop than a year ago, rents in February showed accelerated annual growth of 3.3 per cent, compared to January when rents were 2.8 per cent higher than a year before.
Despite the monthly drop at a national level, rents grew on a monthly basis in half the regions. The strongest monthly rental inflation was a 1.8 per cent rise in Wales, followed by the North East where rents were 0.9 per cent higher than in January. London’s rents also returned to growth – rising by 0.5 per cent. The fastest falls were in the North West, at 1.3 per cent, followed by a 1.1 per cent drop in the East of England and a monthly fall of 0.7 per cent in the South West.
Only one region saw rents fall on an annual basis; the average rent in the South West is now 1.2 per cent less than a year ago. Rents in London showed by far the fastest annual growth, rising by 6.2 per cent – or £64. The South East saw the next biggest year-on-year rise, of 3.3 per cent, while in Wales rents were 2.9 per cent higher than last February.
David Brown, commercial director of LSL Property Services, comments: “The rental market hasn’t yet burst into life, but we’re seeing more vitality than last year’s timid February market, when tenant demand was impacted by the rush to buy homes before the stamp duty deadline. However, this February has also seen a more vibrant sales market reduce the strain on the private rented sector during its sluggish off-peak season. While a modest increase in supply has had an effect too, in the longer-term, the supply of rental homes will have to increase considerably to prevent monthly rent rises when the rental market re-enters its traditional peak season.”
The total annual return on a rental property rose to 6.2 per cent in February. This represents an average return of £10,144 with rental income of £7,622 and a capital gain of £2,522. The average yield on a rental property was 5.3 per cent in February, compared to 5.2 per cent in the same month last year.
If rental property prices maintain the same trend as the last three months, the average investor in England and Wales could expect to make a total annual return of 12.5 per cent property over the next 12 months – equivalent to £20,880 per property.
Brown comments: “The strengthening of the house sales market has had a positive impact on rented property values. Now, alongside faster annual growth in rents, the expected total return looks even more attractive for landlords. Most importantly, low mortgage rates have widened the gap between monthly payments and rental income even further. In the wake of the base rate decision last week, and after recent speculation that Bank rates could even go negative, mortgage rate rises seem unlikely in the near future.”
The total amount of rent late or unpaid recovered to levels not seen since November. Total arrears in February were £248m, down from £269m in January. This equates to 7.4 per cent of all rent across England and Wales, compared to 8.1 per cent of all rent in January.
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