Reeds Rains Property Blog

The rental market is growing week on week with an increasing number of people choosing to let rather than buy. Letting a property can be confusing for the first time tenant, however Hannah Gretton is on hand to explain some of the industry jargon and highlight the most popular terms likely to arise during your tenancy period.

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

Reeds Rains Lettings Manager Hannah Gretton, is a regular contributor on the "Ask The Expert" panel for Manchester's popular Urban Life Magazine, sharing valuable advice on lettings for landlords and tenants.  This month, Hannah, a fellow member of ARLA ( Association of Residential Agents) and Lettings Manager for Reeds Rains City Living Branches at Manchester and Salford Quays; sheds some light on the importance of choosing an ARLA registered agent, if you are a landlord looking to instruct a lettings agent. If you wish to discuss any aspect of letting a property in either the city centre of Manchester or Salford Quays, then call Hannah on 0161 236 9088 or email manchester@reedsrains.co.uk and she will be glad to offer her expertise. 

The Reeds Rains team from our recently opened flagship City Living Liverpool Branch, attended the prestigious '"Your Move Magazine Property Awards" on Thursday 1st November.  Staged at the Metropolitan Cathedral, the awards are the most talked about event in the industry's calendar and are attended by all that contribute to Liverpool's vibrant property market. 

Reeds Rains City Living were awarded 'Best Lettings Agent 2012' which is a great achievement by the team in their first year of trading.  All of the city agents were mystery shopped on their service by an independent company and this award is a real testament to all the effort that has been put in by everyone at the branch. Darren Carter, Branch Manager commented, 'I'm so proud of my team, to achieve something so respected within the area in our first year is fabulous!" 

From Left to Right Maria Coran from Let Support ( award sponsor) with Ian Taylor, Darren Carter and Kelly Drummond 

So if you are a seasoned landlord looking for a proactive agent to source tenants, or a first time landlord that requires an agent to give guidance throughout the letting process, our award winning Liverpool team are here to help. Reeds Rains products range from 'Let Only', 'Rent Collection' and 'Full Managed'.  All you have to decide is what level of involvement you would like.

The City Living Liverpool branch is situated on North John Street within walking distance of Liverpool ONE shopping quarter and nestled close to the heart of the city's business district, primarily dealing with the sale and letting of City Centre apartments and flats in the core postcodes of L1, L2 and L3. Darren adds "We also have houses to sell and let in all compass directions from the city centre, as well as offering a prestige service for the more challenging and executive market of the L17 and 18 postcodes.

To contact our award winning lettings team please call 0151 227 2027   or email liverpool@reedsrains.co.uk

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.”