Continuing this year’s trend of rents increasing by more than the rate of inflation, our latest Buy to Let Index shows that June experienced the quickest rise since records began in 2009.
The average rent in England and Wales has reached a high of £789, that’s up 1.4% on May’s figure and up 5.6% since last June, with nine of the ten regions in England seeing increased annual growth in the last month. The East is experiencing the strongest rises, with rents increasing by nearly 50% more than those in London. These rises are being driven by a lack of stock and an increase in people’s ability to pay higher rents as the economy recovers.
Adrian Gill, Director of Reeds Rains, comments, “Growing wage packets and a strengthening economy mean that a greater number of tenants are able to afford higher rent but we mustn’t lose sight of the driving force behind rent increases – the mismatch of supply and demand. Expanding our housing stock needs to become a national priority.”
Perhaps giving weight to the argument that an increasing undersupply of housing stock is primarily responsible for current rent levels, our Index (Hyperlink) also shows that the proportion of rent in arrears is continuing to rise. In June it stood at 8.7%, up around one per cent on both May 2015 and June 2014. However, the overall trend across the past five years, despite peaks and troughs, is downward and therefore indicative of a slow and steady economic recovery.
Annual returns have fallen slightly for landlords, from 11.9% in the 12 months to June 2014, to 9.2% for the year to this June. Rental income made up more than half of the total, demonstrating the strength of the rental market and the importance of understanding which is most important to you as an investor, capital growth or income for your Buy to Let profits.
In the face of the latest Budget changes targeting landlords’ profits, it is important to remember that property can still offer consistently good returns. However, Adrian Gill states that if the industry is to continue to thrive in the long term, “there needs to be a greater emphasis on what can be done to help tenants and landlords alike. It’s one thing to slap landlords with a tax and call it a done deal, and quite another to address the issue of housing in a consistent and sustainable way. The cornerstone of progress, as ever, is housebuilding.”
The rental market in Wales remains steady, with an encouraging one-month increase in rents of 1.9% from May to June. Average rents stand at £567, holding their own against the Midlands and East Midlands, and higher than Yorkshire and the North East.
Unlike the majority of regions in England, yields in Wales have increased slightly in the 12 months to June, currently at 4.5%.
And a reminder that private landlord registration will become obligatory in Wales this Autumn, delivered by Rent Smart Wales. You must register both yourself and the addresses of your rental properties, and if you undertake the letting or management of your properties, you must also become licensed. See https://www.rentsmart.gov.wales/ for full information.
If you are looking to make energy performance improvements to your rental property, you could cut the amount of tax you pay by claiming the Landlord’s Energy Saving Allowance (LESA), which allows you to deduct various insulation and draught-proofing costs.
At the same time, provided you have a valid energy performance certificate (EPC) for your rental property, you can apply for a grant to install renewable heating systems, via the Northern Ireland domestic Renewable Heat Incentive. If your application is successful, you will receive an upfront sum and a payment every year for seven years. To be eligible for the scheme, the system must be biomass, air or ground source heat pumps or solar thermal panels. See http://www.nidirect.gov.uk/domestic-rhi-introduction for more information.