Rents are accelerating at the fastest pace since last autumn, reaching the highest levels seen so far this year, according to Mount & Minster letting agents in Lincoln.
Average rents for homes to let across England & Wales have now reached £793 per month, as of April 2016. On a month-on-month basis this represents an increase of 0.3% – or the fastest monthly rent rises since September 2015.
This leaves rents 2.4% higher than at the same point last year – or an extra £19 every month for the average tenant. For the East Midlands, including Lincolnshire, this figure is even higher at 8.3%.
A strong acceleration in market rents comes on the back of what was previously a relatively subdued month, when rents saw no change between February and March 2016.
James Ward, Partner at Mount & Minster, comments: “Anyone looking for a home to rent may now find the better deals of the winter months are over. Landlords are seeing renewed interest and competition between potential tenants, as the spring rental market accelerates.”
Some of the reasons for rent rises are extremely encouraging. Tenants looking to find a property to rent are more likely to be in work, getting pay rises, and feeling able to pay their other bills. These wider economic fundamentals are shifting on the side of healthier household finances.
However, very little has changed in terms of the supply of homes to let. Therefore, for many tenants, it is likely that a large proportion of any earnings growth is swallowed up by higher rents. The Government hasn’t helped by imposing an extra bill that someone will have to pay on top of this – in the form of the recent Stamp Duty Surcharge. To a large extent it is likely that penalty will be shouldered by those tenants looking for homes to rent, due only to the fundamentals of supply and demand in the British housing market.
Three-in-ten regions see new all-time records
Rental markets in the East Midlands, West Midlands and East of England have never seen rents higher.
Second only to London in absolute terms, rents in the East of England has seen a new all-time record of £848 in April, on the back of 4.8% rent rises over the last year. Second in terms of annual rent rises, up 6.2% on last April, the West Midlands is now home to average rents breaking through the £600 per month barrier.
However, leading England & Wales by some distance, property to rent in the East Midlands has seen annual rent rises of 8.5%. This takes rents in the region to a new all-time record of £616 as of April.
On a monthly basis, the fastest increases in rents were seen jointly in the East of England and the South East, both seeing rents rise by 1.0% just between March and April. The North East property market follows by this month-on-month measure, with rents now 0.8% higher than in March 2016. In all three of these regions the latest monthly rent rises represent an acceleration compared to relatively more subdued rises previously this year.
Returns and yields
Taking into account both rental income and capital growth, but before property-specific costs such as maintenance, the average existing landlord in England and Wales has seen total returns of 10.7% over the twelve months to April.
This is slightly lower than 11.4% seen a month before, over the twelve months to March, but higher than 9.8% returns over the twelve months ending last April in 2015.
In absolute terms this means that the average landlord in England and Wales has seen a return of £19,538 over the last twelve months, before any deductions such as property maintenance and mortgage payments. Of this, the average capital gain contributed £10,815 while rental income made up £8,723 over the twelve months to April.
While a recent surge in capital values has boosted total returns for existing landlords, the same trend has suppressed rental yields a little for those aspiring to become landlords, or professional landlords looking to grow their property portfolio. As rents rise alongside property prices, rental yields are proving reasonably resistant to rising purchase prices. However the gross yield on a typical rental property in England and Wales (before taking into account factors such as void periods) is now 4.9% as of April 2016, compared to 5.1% in April 2015.
Mr Ward continues: “Yields and returns have been remarkably steady in the face of an onslaught of hostile rhetoric and regulatory hoops. And all else being the same, there is a chance gross yields could rise marginally, to take account of any extra costs and complexities associated with being a landlord – such as the Stamp Duty Surcharge.”
More change is on the way, and landlords will need to take appropriate financial advice on how changes to the tax system could affect them – as well as ensuring that their properties and tenancy agreements comply with every single rule and requirement. This latest imposition is actually not a tax on existing or accidental landlords. Actually, the Stamp Duty Surcharge is a barrier to entry. The danger for tenants is that this new rule will prevent new houses and flats to rent coming on to the market. The advantage for landlords in some areas could be less competition. However, anyone trying to grow their rental portfolio will now need to spend even more time making the right decision – and as of last month more money too.
Paying the rent is becoming slightly easier for tenants
Tenants across England & Wales are now finding it slightly easier to pay the rent on time. As of April 8.1% of all rent due in the month was in arrears, compared to 9.1% in March. However this still represents a more challenging situation than at this point in 2015, when tenants were behind with only 7.0% of rent due in April last year.
In a longer-term context, the latest improvement remains extremely encouraging. April still compares very favourably to the all-time high of 14.6% of all rent payable in arrears – set in February 2010.
All the signs are right for a strong improvement in tenant finances. Wages are finally showing a bit of exuberance and employment has never been higher. But rents haven’t ever been higher either in much of the country. There is a powerful trend underpinning the affordability of renting for a large majority of Britain’s tenants, but there are also serious shortages of homes to let in all the same places that people want to live.
Rental arrears reflect this mismatch between supply and demand. Waves of interest from the bulk of financially healthy tenants are capable of pushing up rents across the market. But unless landlords are allowed to respond by investing in new homes then supply will not quite ever be able to keep up. This is the mechanism that very soon could demonstrate the misguided nature of the latest targeting of landlords from the UK authorities. Tenants will always lose out if the bottom line is a shortage of flats to rent or houses to rent in local markets.
For details as to how Mount & Minster can help you and your portfolio, please contact our Lincoln office on 01522 716204 or email firstname.lastname@example.org