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Latest LSL Buy to Let Report: Rent Rises Slow, but October Sees Average Record of £744 Per Month

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Rent Rises Slow, but October sees record of £744 per month

  • Rents in England & Wales rise at slowest monthly rate since May

  • Average rents hit all time high of £744 per month 

  • Tenant arrears fall to lowest level since January 2011, at £265m

Tenants saw average rents rise by 0.4% in October, the slowest rate of increase since May, according to the latest Buy-to-Let Index report from LSL Property Services plc, which owns the UK’s largest lettings agent network, including Reeds Rains.

 

Despite the slowdown in rental inflation, the monthly increase represents double the size of the 0.2% increase seen in the same period last year. After seven months of rent rises, rents are 3.4% higher than at the same point last year, with the average rent in England and Wales at a new high of £744 per month.

 

In London and the South East rents continued to rise, albeit at slower rates of 0.9% and 0.7% respectively. Five regions saw rents fall in October, with the sharpest falls in Wales and the Midlands. Rents in Wales fell by 1.6%, while those in the East Midlands fell 1.8% – the first fall in this region since March.

 

On an annual basis, rents rose the fastest in London. They increased by 7% to £1,102 – breaking the £1,100 barrier for the first time. The South East saw the next highest rise, 3.2% higher than a year ago. Meanwhile after monthly falls, rents in both Wales and the East Midlands are lower than at this point last year – by  2.2% and 1.5% respectively.

 

David Newnes, Director of LSL Property Services comments: “Rents may be rising but the good news for tenants is that the rate of increase is at its lowest in five months. A combination of improved buyer activity and a seasonal slowdown has taken some of the heat out of the rental market as it enters the traditionally quieter final months of the year. However, despite the deceleration, the fact that monthly rents rose by twice the rate seen a year ago points to the underlying strength of tenant demand.”

 

Looking ahead, it’s difficult to see rents remaining stationary once the winter lull has passed. Admittedly, the sales market has shown signs of life in the last month, and the Funding for Lending Scheme seems to be acting as a catalyst for a modest improvement in the mortgage market. However, banks still need to set aside large sums of money for high LTV lending, so in the longer term the number of first time buyers won’t return to the level necessary to significantly undercut the strong demand for rental property.”

 

As a result of improving property prices in October, landlords saw an averagetotal annual return of 6.6% on a rental property in October, up from 5.9% in September. This represents an average return of £10,819 with rental income of £7,926 and a capital gain of £2,892.

 

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 4.3% per property over the next 12 months – equivalent to £7,067 per property.[1]  The average yield on a rental property rose to 5.4%, from 5.3% in October 2011.

 

Newnes comments: “Landlords’ prospects now look even better on paper, with capital gains contributing to overall returns. But there are grounds for caution. With the long-term headwinds facing the housing market, there’s no guarantee prices will rocket upwards in the next few years, and steady rental income is crucial for an investor’s return – let alone to pay the mortgage. In this context, it’s even more important that landlords avoid void periods, and prospective investors who research the areas with the biggest rental demand before purchasing will do well.”

 

The total amount of rent late or unpaid fell to the lowest level since January 2011, with total arrears of £265m, down from £297m in September. This equates to 8.1% of all rent across England and Wales.

 

Newnes concludes: An improving economy and a resilient jobs market have helped tenants get on top of their rent. But we’ve also seen a change from landlords, who are cherry-picking the most financially robust tenants – especially for the most expensive properties. Property investors have become incredibly rigorous with their checks on prospective tenants, and are feeling the benefits.  

 

“Tenants, too, have cut down on spending as a necessity. Whether tenants can keep up this prudence over the festive season remains to be seen. 2013 will bring more austerity, and if rents rise further, arrears are unlikely to continue to fall.”

 

To read the full report including a regional breakdown click here

 

September Rents Up By 1.1% To Reach Record Of £741

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The September 2012 Buy to Let Index from LSL Property Services in partnership with The Wriglesworth Consultancy has been released today, providing a measure of the average rental prices in England and Wales for September 2012.

  • Rents accelerate on an annual basis, growing by 3.2%
  • Rents in London rose at their fastest annual rate since January, up by 6.2%
  • Tenant arrears increase slightly, with  9.1% of rent late or unpaid

Data from the Buy to Let Index for September 2012

Rents hit a new high of £741 per month in September, according to the latest Buy-to-Let Index from LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

In England and Wales the average rent rose by 1.1% in September, surpassing the previous record high of £734 in August. While this is slower than the previous 1.2% monthly increase, rents climbed by 3.2% across England and Wales on an annual basis, accelerating from an increase of 2.9% in August. This is the fastest annual increase since February.

In the last month, rents rose across seven regions. London and the South East saw the strongest increases, with rents rising by 1.7% and 1.9% respectively. With rents reaching a record £1,092 pcm, London’s rents rose at their fastest monthly rate since November 2010. Three regions saw rents fall in September: the East of England, Yorkshire & the Humber, and the West Midlands.

On an annual basis, rents have risen the fastest in London, where they climbed by 6.2% and the South East, where they increased by 4%. Rents fell in two regions annually, dropping by 1.5% in the South West and 1.4% in Wales. However the rate of decline was slower in both regions than in August.

David Newnes, director of LSL Property Services comments: “Rents have risen consecutively for half a year as tenant demand strengthens on the back of a historically subdued mortgage market. However, every pound monthly rents go up by is another pound that renters can’t save for a deposit for their first home. This is lengthening their stay in rented accommodation, and increasing competition in the private rented sector.”
 
“New tenants may see some relief in coming months as the rental market exits its peak season – the rental market tends to cool in the final part of the year. However, over the long-term, any sustained fall in rents will be closely tied to a consistent and significant improvement in lending at higher LTVs to prospective first-time buyers.”   

Landlords saw an average total annual return of 6.2% on a rental property in September, up from 5.5% in August. This represents an average return of £10,216 with rental income of £7,909 and a capital gain of £2,307.

If rental property prices maintain the same trend as the last three months, an average investor in England and Wales could expect to make a total annual return of 9.2% per property over the next 12 months – equivalent to £15,226 per property.   The average yield on a rental property increased slightly to 5.4%, from 5.3% in August.

Newnes comments: “Rising rents may be a source of financial pain for many tenants, but they are underpinning annual returns for landlords, increasing the appeal of entering the buy-to-let sector. Yields are climbing steadily, comparing favourably with other forms of investment, and in the context of historically low mortgage rates, the key ingredients are in place for lucrative long-term investment. If lenders can support the growing appetite for property investment, it should lead to an improvement in the supply of homes available for tenants.”

Tenant finances deteriorated slightly, after seeing an improvement in the previous month. 9.1% of all rent was late or unpaid at the end of September. However, this remains below the average of 9.5% seen in the previous twelve months. In total, late or unpaid rent amounted to £297m, 3% more than in the previous month.

Newnes concludes: “September’s rise in rental arrears looks like a bit of a set-back for tenants’ finances, but arrears are still down on the average seen in the last twelve months. That things aren’t much worse is testament to the stringent scrutiny applied by landlords as well as a reflection of the higher proportion of tenants who are financially robust yet unable to secure the mortgage finance necessary to leave the sector.

“Nevertheless, it’s clear that the monthly rent cheque is taking up a larger and larger chunk of a tenant’s disposable income and landlords cannot afford to drop their guard against potential payment problems.”

LSL Property Services Director David Newnes Comments on the Latest Buy to Let Index

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The July 2012 Buy to Let Index from LSL Property Services in partnership with The Wriglesworth Consultancy has been released today, providing a measure of the average rental prices in England and Wales for July 2012.

  • Rents hit new record high in July, rising to £725 per month
  • Average rents climb by 1% compared to June, pushing annual rental inflation to 2.9%
  • Tenant arrears rise for second successive month, with 9.3% of rent late or unpaid

Data from the Buy to Let Index for July 2012

David Newnes, director of LSL Property Services comments as follows in the latest Buy to Let Index Report from LSL Property Services and The Wriglesworth Consultancy published 17th August 2012.

“The backlog of frustrated first‐time buyers in the private rented sector showed no sign of clearing in July – in fact, it is still growing. As lending to those without substantial deposits remains depressed, demand for rented accommodation can only go one way in the long‐term – providing further upwards momentum for rents. The rental market is also entering its summer peak, as recent graduates and those with new jobs begin to look for new accommodation. With more tenants on the move, alongside long‐term underlying demand, fierce competition for properties is enabling landlords to increase rental prices to new highs.”

“Rents have returned to record highs, average yields have hit their highest level this year, and returns are healthy, tempting many investors into the market. Banks and Building Societies are tapping into this robust demand, and buy‐to‐let is the only sector of the mortgage market showing consistent growth, with lending increasing 18% year on year. It’s crucial that lenders continue to increase their commitment to property investors to allow the private rented sector to expand at the rate needed to accommodate the growing number of frustrated would‐be buyers.”

 “With the economy still in recession, and rents climbing to a new record high, the minority of tenants experiencing difficulty in meeting the monthly rent cheque on time is steadily climbing. However, this has not yet fed through into increased mortgage arrears for landlords, with the number of buy‐to‐let mortgages over three months in arrears actually falling compared to last year.”

Manchester is a Lucrative Location for Investor Landlords

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Recent reports indicate positive upward movement in the UK rental market, with property in the North West proving particularly lucrative for landlords; a trend which Reeds Rains City Living can confirm as interest in their Manchester buy-to-let properties continues to soar.

One of the largest cities in the UK, Manchester is increasingly becoming the destination of choice for tenants looking to avoid the high premiums that are an unavoidable aspect of renting in the capital, in addition to the attractiveness of a location with excellent transport links, both into and out of the city.

Reeds Rains, residential Branch Manager Greg Davies, comments, “The buy-to-let market in Manchester continues to be a popular choice for investors as good yields are coupled with strong demand from tenants especially within the city centre and Salford Quays”.

The latest information reported in the LSL Property Services Buy-to-Let Index, highlights how London buyers need to supply larger cash deposits than anywhere else in the country. Couple this with a 1.7% increase in North West rents and there is a strong indication that property in cities like Manchester is a much savvier investment for landlords, particularly over the long-term.

The Manchester property market is unique to most major cities, as there has been little-to-no new-build property since the price crash. Rental prices have continued to rise over the past five years at a rate that the properties haven’t, but the market is starting to turn and property prices are rising, making Manchester a great area for investment.

“As more would-be-buyers decide to let rather than buy the rental prices continue to rise therefore demand for suitable buy-to-let properties grows as investors are keen to benefit from these current market conditions” Greg Davies further comments.

The Private Rental Sector in general is painting a positive picture of the UK property market. Indeed, research from Paragon Mortgages’ PRS Trends Q2 Report highlights how the second quarter of 2012 has shown a marked increase in the average size of property portfolios, in addition to an increase in average yields (rising from 6.2% in Q1 to 6.5% in Q2) and a confidence from landlords that tenant demand is continuing to grow.

A city ripe for investment, Manchester is currently undergoing a period of intense regeneration, with plans submitted for a new £100million town hall complex and a £113million regeneration scheme throughout the Greater Manchester area. The new Media City site in Salford Quays is an additional boon to the city, with a £70million complex of designer shops, bars, restaurants and cinemas, in addition to being home to the brand new BBC and ITV studios and the famous Lowry Theatre.

Property specialist Reeds Rains City Living currently has a number of buy-to-let opportunities available in Manchester, in prime locations and generating higher-than-average yields...

48 Princess Street, Manchester M1 6HR - £97,500: A spacious one double bedroom apartment located within this period conversion located in the heart of the city centre on Princess Street. Original features include high ceilings, wooden ceiling beams and feature columns. Situated close to the universities, the village, train stations and China town. No chain. Potential rent £650 pcm, service charge approx £1521 pa - therefore net yield (after service charge deductions) is approx 6.4% (based on an asking price purchase).

Treelands Walk, Salford, M5 3FU - £95,000: Currently tenanted until October 2012 at £600pcm, this is a perfect investment opportunity; a superb two double bedroom, mid-terrace house, overlooking Monmouth Park with car parking spaces to the rear of the property. Approximately half a mile from Exchange Quay Metrolink station provides easy and quick access to Manchester City Centre as well as being within one mile of Salford Quays. Gross yield approx 7.6% (based on an asking price purchase).

For further information on any of the investment opportunities mentioned in this article, or to discuss expanding your property portfolio, please contact the Reeds Rains City Living Manchester team on 0161 236 9088 or by emailing manchester@reedsrains.co.uk.

LSL Property Services Director David Newnes Comments on the Latest Buy to Let Index

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The June 2012 Buy to Let Index from LSL Property Services in partnership with The Wriglesworth Consultancy has been released today, providing a measure of the average rental prices in England and Wales for June 2012.

  • Third successive monthly rise as rents climb 0.9%
  • Rents rise in 9 out of ten regions, hitting record high in London
  • Tenant arrears deteriorate in face of rising rents, with 9.2% of rent late or unpaid

Data from the Buy to Let Index for June 2012

David Newnes, director of LSL Property Services comments as follows in the latest Buy to Let Index Report from LSL Property Services and The Wrigleswoth Consultancy published 20th July 2012.

“The sheer weight of tenant demand continues to push up rents across the country. Lending criteria remains tight and the number of mortgages given to first-time buyers – especially those without substantial deposits – is still a long way from the level seen before the credit crunch. With higher rents and the growing cost of living eroding how much tenants can save towards the large deposits required to buy, it’s no surprise to see the private rented sector swelling by 262,000 households a year.”

“But shorter-term factors were also at play in June. The rental market tends to see a flurry of activity at this time of year as tenants look to move before the onset of summer holidays, but this trend has been exacerbated – especially in London –  by tenants moving with urgency to secure properties ahead of the disruption of the Olympics.”

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