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Posted by Let Alliance on June 20, 2011
Rents reached a new record high in May after four successive months of rises, according to the latest Buy-to-Let Index from LSL Property Services plc.
In May, the average rent in England and Wales rose by 0.5% to ¬£696 per month, surpassing the previous high of ¬£692 in April. The growth means that the average rent is now ¬£30 per month higher than May 2010 ‚Äì an annual inflation of 4.4%. The average yield remained at a record high of 5.1% in May.
The figures mask huge differences in regional fortunes. In the past 12 months, rents have risen in all but two regions in England and Wales. Rents have risen the fastest in London, where they increased 7.8% in the past year. The next biggest rises were in the North East, and the East Midlands where rents increased by 6.4% and 6.2% respectively. In the last year, average rents have only fallen in the South West, where they declined by 0.4%, and the East of England, where they have fallen by 1.2%.
Over the last month, rents increased the fastest in the East of England and the North East, rising by 1.4% and 1.1% respectively. Rents only declined in three regions ‚Äì the West Midlands, where they fell by 0.7%, the South West and Wales, where rents fell by 0.6% and 0.2% respectively.
The total annual return on a rental property now stands at 2.9% with high yields offset against a slight annual decline in rental property prices. The total annual return is the equivalent of ¬£4,891 – ¬£7,414 in rent, with a capital loss of ¬£2,523. If property values continue on their current trend, a property investor could expect to make a total annual return of 5.7% over the next year ‚Äì equivalent to ¬£9,404 per property.
In London, where property prices have performed strongly compared to the rest of the UK, annual returns are nearly five times the national average. The average London landlord has seen a total annual return of 9.5% – ¬£22,339 per property. Property investors in the South East saw the next highest annual returns of ¬£4,798 (2.6%) while the landlords in the East of England saw total annual returns of 4,690 (2.5%).
Tenant arrears decreased in May, with 11.5% of all UK rent unpaid or late by the end of the month. Although this is a slight decrease from the 11.8% in the previous month, it remains well above the 10.6% average of 2010. Unpaid rent totalled ¬£277m across the UK in May, a decrease of 2.5% from the ¬£284m unpaid in April.
Brown concludes: ‚ÄúArrears fell away slightly after an abnormal April, which was distorted by the additional bank holiday at the end of the month. Nevertheless, their elevated level in a more ‚Äònormal‚Äô month should provide a note of caution for landlords. Tenant finances are coming under increasing strain from rampant inflation and soaring rents. The labour market has remained surprisingly robust, but public sector job losses will begin to have a deeper impact on many tenants‚Äô finances as the year progresses. It is critical that landlords notice and react quickly to any potential payment problems to prevent tenant arrears spiralling out of control‚Äù.