24 Nov

Buy-to-Let Index - October 2014

Posted 24/11/2014 by: Reeds Rains

Tenant finances absorb record rents

  • Rents across England & Wales reach new record of £770 per month, up 1.5% over the last twelve months
  • Tenant finances improve despite higher rents – with levels of late rent now just 0.3% above all-time lows
  • Landlords’ gross returns reach 13.3% over last year, due to shorter void periods and rising house prices

Tenants have paid down rent arrears despite a new record for monthly rents in October, according to the latest Buy-to-Let Index.

Residential rents across England and Wales now average £770 per month, or £12 more than October last year.

Annual rent rises were 1.5% in the twelve months to October 2014. This follows faster average rent rises of 1.9% in the previous twelve months ending October 2013, and rental growth of as much as 3.4% over the preceding year.

On a monthly basis, rents in October 2014 rose 0.3%, or just £2 compared to the previous month of September 2014.

Slower rent rises have coincided with healthier tenant finances, with rent arrears approaching all-time lows. 

David Newnes, director of estate agents Reeds Rains, comments: “Rents have edged to a new record and the rental market is pulsing with new demand. Yet at the same time, tenants are getting on top of their finances – helped by a cooling pace of such rent rises.

“Better affordability is good for tenants in the longer run too – and for landlords who can rely on steady revenue to pay the bills. That helps to support a virtuous cycle of only gradual rent rises. Alongside slower overall inflation, a material boost to the supply of properties available to let has helped keep rents from rising as quickly as in previous years.”

In absolute terms this means the average landlord in England and Wales has seen a return, before deductions such as mortgage payments and maintenance, of £22,434 in the last twelve months. This is made up of rental income of £8,404 and an average capital gain of £14,030.

Looking ahead, if rental property prices continue to rise at the same pace as over the last three months, the average buy-to-let investor in England and Wales could expect to make a total annual return of 11.2% over the next year, equivalent to £20,520 per property.

David Newnesconcludes: “Landlords have benefitted from a spurt of rapid house price growth.  But as price rises steady a little, landlords can rely on newly stable rental yields.  Gross yields on a typical property dipped over the last six months as purchase prices grew faster than rents, and now yields have steadied again, just above the long-run average of five per cent.

“Stable yields aren’t the only good news for landlords.  Letting a property now involves even less risk of not getting the rent on time, and tenant arrears could reach a new record low in the coming months.  That should boost demand from tenants, investment from landlords and perhaps even good deals from lenders.  Good news on the affordability of renting is good news for the whole industry.”

 Read more details on the Buy-to-Let Index