Rents fell 0.5% in January and are now 2% lower than in September 2009 following the fourth month of consecutive declines. Declines were broadly spread by region. By contrast, house prices are 3.3% higher.
This followed a period of more intense activity in the housing market as investors rushed to benefit from the stamp duty holiday. The additional supply of rental housing pushed rents lower.
Total returns in January (combining rental income and house price growth) were 16.7% on an annualised basis. This means a landlord would make a total return of £27,500 on a typical property this year. Almost £20,000 of this return would be in the form of house price inflation.
David Brown, commercial director of LSL Property Services, said: "Landlords moved fast to add to their portfolios before the stamp duty holiday ended in December.
"This has meant higher rental supply at a time of year when tenant demand is traditionally quieter. Landlords have had to cut rents in order to avoid even costlier void periods.
"Sacrificing a few pounds a month in rent to save themselves an average of £1600 tax on each property bought was a very shrewd move as it would take years to recoup that saving through gradual rent hikes. Now the holiday is over, it’s crucial landlords don’t lose sight of rents.
"Total returns look very enticing at present as house price increases contribute a larger share of a landlord’s profit.
But, landlords should look to balance their returns between a steady rental income and long term capital growth. Focusing on one at the expense of the other is a risky investment strategy. Over the long term, investment in buy-to-let must be underpinned by a strong yield."
Landlords saw in the new year with lower tenant arrears. Collective tenant arrears had fallen £34.1million to £247million by the end of January compared to December. Tenants are usually slower with their December rent, holding back to smooth their Christmas cash flow. Serious arrears (more than three months) held steady at £24million.
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