In September, the average rent in England and Wales rose by 0.7% to £718 per month, surpassing the previous record high of £713 in August.
With annual rental inflation at 4.3%, the average rent is £29 pcm higher than September 2010. The average yield in September rose from 5.2% to 5.3%.
On a monthly basis, rents rose in all regions of England and Wales for the first time on record. As a result, rents hit record highs in six regions – London, the South East, Yorkshire and the Humber, the East of England, Wales and the East Midlands.
Rents increased the fastest in the South East and the East Midlands, where they rose by 1.8% and 1.1% respectively compared to August, while the smallest increases were in the West Midlands and the North East, where rents rose by 0.2% and 0.3%.
However, over the course of the last year, London’s rents have risen at a faster rate than any other region, increasing by 5.8%. The next biggest annual increases were in the South West and the West Midlands, where rents rose 5.4% and 5.1% respectively.
David Brown, commercial director of LSL Property Services said: “It’s not just a regional phenomenon, localised to London and the South East – rents are rising across the board.
“In areas of the highest demand, such as the Capital, competition is driving up rents at a faster rate – but no region has been immune to the growing demand for rental homes from frustrated buyers.
“In many cases, buying a home is now cheaper on a monthly basis – provided renters can get past the stumbling block of the substantial deposit requirements.
“As things stand, we won’t see competition amongst prospective tenants diminish without a substantial expansion in the supply of rental properties available on the market.”
The total annual returns on a rental property dropped back in September after property prices fell annually. The average total annual return in September was 1.8%, the equivalent of £3,005 – £7,661 in rent, with a capital loss of £4,666.
However, property price changes in the last quarter have held up better than in the previous twelve months, and if they maintain the same trend as the last three months, a property investor could expect to make a total annual return of 8% over the next 12 months – equivalent to £13,070 per property - according to LSL.
David Brown continues: “Rising rents may prove to be a headache for tenants, but they are improving the outlook for investors – which may in turn encourage further investment in the private rented sector.
“Despite capital losses after house prices fell annually, growing rental incomes means returns are still in the black.
“Yields have risen to their highest level since the housing downturn, outstripping many alternative investments. With house prices yet to resume their upwards climb, there are opportunities for prospective investors to secure profitable bargains.”
Tenant arrears improved markedly, following August’s seasonal increase, dropping to their lowest level since April 2010 at 8.6% – down from the 10.7% of rent unpaid or late in August. Unpaid rent totalled £243m across the UK in September, down from the £300m unpaid in the previous month.
Commenting, Paul Jardine, receiver and director of Templeton LPA, the surveyors specialising in LPA receiverships, said: "The eighth month of rental inflation may steal the headlines but it is the drop in tenant arrears that will be a cause of celebration for many property investors.
“But over the longer term, many landlords have changed their behaviour to help limit rental arrears through a combination of increased vigilance and communication with tenants, and showing less forbearance with those in substantial arrears.
“However, despite the improvement in arrears in September the recent unemployment figures should give pause for thought. At the same time as rents are rocketing up, unemployment has crept above 8%, and a growing number of tenants are likely to see their jobs under threat.
“Tenant finances have been in better shape than expected in the past year, but we are concerned that rental arrears will mount as the planned public sector job losses take their toll on the labour market."
