Rent Soars to Record Levels

England and Wales rental property costs rose to a £713 per month in August, the fastest rise in rates so far this year.

The LSL Property Services Buy-to-Let Index shows that this is the seventh consecutive monthly rent rise this year. According to LSL, which offers an array of mortgage services to lenders and consumers, tenants in the above areas paid 1.2% less on average for their July rent than they did in August, making this the largest cost increase since August of last year.

London Rental Tops the List

London was the hardest hit area, with an annual rent increase of £63 a month (6.6%.) At £1,025 per month, London’s rental costs hit a record high in the month of August. At 6%, the West Midlands had the second highest cost increase in rent, and, at 4.3%, the north-east had the third highest cost increase in rent. Humber and Yorkshire were the only areas reporting decreases in the cost of rental accommodations over the last year.

Decline in First Time Buyers

LSL estate agency managing director, David Newnes, says that part of the rental price rise is due to the increased rental demand from consumers that would, if not for the current economic climate causing mortgages to be so difficult to obtain, be first time buyers… not renters. Graduates moving into the area over the summer for their first job is also a causative factor behind the cost and demand rises in renting. Mr. Newnes also suspects that competition for rental accommodations and the price of rent will both continue to rise since securing a mortgage isn’t expected to get any easier for potential buyers in the near future.

While existing and potential tenants aren’t very happy about the rental cost increases and growing demand and competition for rental accommodations, landlords are far from distraught. They’ve seen a 2.6% increase in their annual rental properties returns in August, and they’re certainly not complaining about the revival of the buy-to-let market.

According to the LSL’s most recent survey, investors could expect to make an annual return of 10.5% during the next year, which would amount to around £17,381 per property, should property values continue with their current trend.

Investors are getting Great Returns

The managing director of Mortgages For Business, David Whittaker, notes that current conditions have produced the ideal environment to attract professional investors looking for lucrative investment opportunities. He also notes that buy-to-let deals can bring very nice returns, but that deals on multiple occupation houses and multi-unit freeholds can bring up to 10% returns.

The yields may be attractive, but it should be noted that LSL also found that higher rents are affecting a tenant’s ability to pay their rent. LSL found that August tenant arrears increased for the first time since April of this year. Around 11% of all UK renters either paid their rent late or not at all in the month of August. This was a 2% rise from the month of July and accounted for around £300m in unpaid rent. Between uncertain economic conditions; rapidly, increasingly rising rents; and soaring inflation, landlords can expect rental arrears to become in an increasingly present financial problem.