Rents fall for first time in 11 months

In December, the average UK rent dropped by 1.2 per cent to £684 per month – the lowest average since July 2010. Despite the decrease, rents in December were 3.8 per cent higher that a year ago. The average yield fell slightly to 4.9 per cent in December, the first drop since January 2010, as rents declined at a faster pace than rental property values.
Rents fell fastest in Wales, down 2.6 per cent, while the average rents in the south east and London decreased by 2.5 per cent and 2.3 per cent respectively. However, rents did drop in all regions of the UK. The west midlands and south west saw rents rise by 2.2 per cent and 1.7 per cent, while there were smaller increases in the east midlands and north east.
David Newnes, estate agency managing director of LSL property services, owners of Your Move and Reeds Rains commented: "December is traditionally a slower month for the rental market. Many prospective tenants are either away from home, or prioritise Christmas spending over budgeting to move. This year, the added arctic weather temporarily dampened demand, deterring many renters from hitting the streets and viewing properties.
"But the recent slowdown in rents is down to landlords' pricing strategies. Landlords offering properties during the holiday season often lower the asking rent to avoid a costly void period. If a landlord cuts the rental price by 5 per cent to fill a property immediately, he will save £275 over the year rather than seeing their property vacant for the duration of the month. Nevertheless, with the supply of mortgage finance to both first-time buyers and would-be landlords still constrained, we are likely to see rents re-start their upwards march before the spring."
Following a steady fall in property prices over the past three months, the total annual return on a property has dropped to 7 per cent in December – the lowest return since November 2009. This is now the equivalent to £11,431 – £7,332 in rent, and £4,099 in capital gains. If property prices continue to decline at the same rate of the last quarter, an investor entering the market now could expect to make a total annual return of £3,259 per rental property[i] – equivalent to £8,211 in rent and capital losses of £4,953.
Newnes continued: "Landlords have seen an end to the post-crunch bounce-back in annual returns, and must view their portfolios as long-term investments. As the months of strong house price inflation fall by the wayside, the prospects for short-terms gain are slender. But with rents remaining historically very high, and tenant demand set to increase, buy-to-let provides very good investment prospects over the long-term."
The Christmas period had a negative impact on tenant finances. 11.7 per cent of all UK rent was unpaid or late by the end of December, rising from 9.7 per cent in the previous month. Unpaid rent totalled £276m across the UK in December, the highest total since December 2009.