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Rental reprieve but tenants still feel festive pinch

Seven regions saw rents decrease in December compared to November. The joint-largest falls were in the East of England and North East, where rents dropped by 1.7%. These were closely followed by London were rents fell 1.5% and the South East with a 1.3% fall. Three regions saw monthly increases; the fastest rise was in the West Midlands, where rents posted 1.3% growth.
Next was the South West, with a monthly rise of 0.9%, while rents in Wales crept up by 0.4%.

On an annual basis, rents remain higher than a year ago in eight out of ten regions.  London has seen the largest annual rise (6.3%) followed by the South East where rents were 3.9% higher than the previous December. This comes despite lower rents than a year ago in the East Midlands and Wales – with falls of 1.2% and 0.8% respectively.

David Newnes, director of LSL Property Services, owners of estate agents Reeds Rains and Your Move, said: "Rents may have returned to August levels but it’s a seasonal blip rather than an about-turn in the market.  Tenants were in a stronger bargaining position as landlords reduced rents to fill empty properties in the slower winter months, yet as the New Year progresses the underlying weakness in the mortgage market will mean competition will heat up once more.

"Long-term problems remain for new buyers looking to leave the rental market, and Funding for Lending is proving a double-edged sword. While rates are coming down for those with large deposits, extremely low saving rates are hitting those still trying to pull together a deposit – a problem accentuated by the record low base rate."

Alongside rises in property values over the year, annual rental inflation means the total yearly return on a rental property grew to 6.2% in December. This represents an average return of £9986 with rental income of £7835 and a capital gain of £2150.

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 £6994 per property. The average yield on a rental property was 5.4% in December, compared to 5.3% a year ago.

Newnes said: "So long as there’s an underlying shortage of mortgage finance at high LTVs and a shortage of property being built, there’ll be people queuing up to rent a home. There’s still a wave of renters who in previous decades would already be homeowners – and despite more products for first-time buyers becoming available, criteria remain strict. Stronger lending at lower LTVs is helping landlords cater for these people, but can’t clear the five year old backlog of demand that will underpin rental yields. Landlords have also seen capital gains coming back into play in several areas, particularly in London where this is a large part of the average landlord’s £26,000 total annual return."

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