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News: Rents rise by less than inflation, say agency group LSL

Mon, 19 May 14

The latest Buy-to-Let Index from LSL Property Services plc shows rents in April have climbed 12.9 per cent since January 2010, less than CPI inflation over
the same period, which amounts to a total of 14.5 per cent. Indeed, while prices may be accelerating ahead of UK buyers’ pockets, the UK’s rented sector appears to be growing at an affordable rate: in absolute terms the average rent in England and Wales has risen by only £5 in the last year, currently standing at £741 per month compared to £736 in April 2013.

“Private renting is not in any form of crisis," comments David Newnes, director of estate agents Reeds Rains and Your Move, part of LSL Property Services. "Not only are rents rising more slowly than inflation, but the cost of private renting is also rising in line with household incomes. Even before the economic weather changed so recently, the last few years have seen rent rises dwarfed by
inflation most of the time. Meanwhile the private rented sector has absorbed millions of households while other tenures have been unable to take up the slack."

April 2014 is the 11th month in a row where rent rises have been less than inflation, painting a far more positive picture of the buy to let market than the one suggested by recent calls to scrap letting agent fees - a move that Newnes argues would only push rents higher.

David Newnes, director of estate agents Reeds Rains and Your Move, part of LSL Property Services, comments: “Proposed reforms to the private rented sector are clearly well-intentioned, but will not help the rental market.

“Poorly thought-through proposals could throw a spanner in the works. Firstly, rents would be higher. When tenant fees were banned in Scotland rents rose 4 per cent in the space of six months. This is ten times the rate of rent rises in England and Wales over the same six month period, where such a ban had not
been introduced. Before this they were mostly flat.

“Secondly, the equal treatment of potential tenants would also suffer. If tenant fees are banned and the landlord and letting agent have to bear the cost, there is every possibility letting agents and landlords will start pre-vetting tenants. Furthermore, if tenants have no advance financial commitment
then there is nothing to stop them pursuing multiple tenancies at the same time and just taking the first one that completes, dropping the others."
 
“Far more effective would be if politicians focused more on encouraging the supply of new homes," he adds. "Parliament should be debating how to help increase investment in the private rented sector even further."

Rents in six out of ten regions are higher than a year ago. The fastest annual increase is in the South West with rents up 4.3 per cent since April 2013. This is followed by a 3.2 per cent annual rise for the East Midlands and a 2.4 per cent increase in the North West compared to twelve months ago. London, Wales and the South East have all also seen rents rise, though more slowly. Rents are up by just 0.6 per cent in all these regions since April 2013.

Out of the four regions where rents are now lower than twelve months ago, the North East has seen the greatest fall – down by 3.0 per cent. This is followed by a 2.8 per cent annual drop in the East of England, a 2.0 per cent fall in the West Midlands. Rents in Yorkshire and the Humber are 0.7 per cent lower than twelve months ago.

Gross yields on a typical rental property have held steady at 5.1 per cent in April. Due to higher property values, this is slightly lower than in April 2013, when the average gross yield on a rental property in England and Wales stood at 5.4 per cent.
 
However, taking into account price growth alongside void periods between tenants, total annual returns on the average rental property are now 10.3 per cent, up from 5.8 per cent in the twelve months to April 2013.

David Newnes continues: “Improved mortgage lending is helping landlords to expand their portfolios in many areas of the country. And while every corner of England and Wales has its own local market, the overall trend is clear. Landlords are prospering – and tenants are feeling a parallel benefit.”

“It should be remembered how not all landlords are ‘fat-cat investors’. Many only have one property used as their pension. Others are ‘accidental landlords’ and rely on the rent to pay their mortgage. If tenants drop out at the last moment, this could mean hardship."


See also: LSL BTL index.

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