Rents have risen at twice the annual rate of weekly wage

Rents have risen at twice the annual rate of weekly earnings, according to the latest buy-to-let index from LSL Property Services.

Average rents across England and Wales now stand at £753 per month as of November, up 1.6% compared to November 2012.

By comparison wages have risen by just 0.8% on an annual basis. Average regular pay before tax stands at £1,941 per month, according to the latest official figures.

Rents across England and Wales remain significantly higher than a year ago, despite a recent seasonal drop of 0.7% (or approximately £5) in the month since October 2013.

November also witnessed annual growth in lettings activity. The number of new tenancies agreed across England and Wales increased by 1.5% compared to November 2012. This was despite a slowdown on a monthly basis, with 6.3% fewer new lettings than in October.

David Newnes, director of LSL Property Services, said: “Economic reality now resembles the most optimistic dreams of last year. But for so many households, the dream of homeownership is still relegated to the imagination.

“It’s not just wages. Savings rates have been swamped by inflation for half a decade – so building up even a 5% deposit is a real struggle. Help to Buy is having a perceptible impact, with thousands of first time buyers benefiting already. Yet millions of new households have joined the queue at the bottom of the housing ladder – and private renting is the only tenure to have taken up much slack.”

Eight out of 10 regions saw rents fall on a monthly basis between October and November, in line with a monthly fall across England and Wales as a whole.
The sharpest monthly drop was in the West Midlands, with rents down 2.6% since October. This was followed by a fall of 1.8% in the South East and a 1.3% monthly decrease in the East of England.

However, the South West experienced rent increases of 1.1% between October and November, while rents in Wales also rose slightly on a monthly basis, up by 0.2%.
On an annual basis, London saw the steepest rent rises – 4.4% higher than in November 2012. This was followed by a 3.4% annual increase in the South West, while rents in the South East are 3.2% higher than twelve months ago.

Meanwhile, rents in the East of England have fallen by 5.5% (or £42) over the last year. This was followed by a 2.8% annual drop in the West Midlands, while rents in both the North East and Yorkshire and the Humber are 2.0% lower than November 2012.

“Economic recovery is spreading throughout the UK. And the property market is the leading edge of that wave. As the home purchase situation heats up, the effect on the rental market is even less uniform – with rises accelerating in some areas and slowing in others. Across the UK, every town and city is its own market, and requires local knowledge,” said Newnes.

Gross yields on a typical rental property remained steady at 5.3% in November, consistent with the past three months. However, taking into account capital accumulation and void periods between tenants, total annual returns on an average rental property rose to 8.9% in November. This is up from 8.1% in October – with the increase due to accelerating house price rises. In absolute terms this represents an average return of £14,592, with rental income of £8,243 and capital gain of £6,349.

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 10.5% over the next 12 months, equivalent to £17,294 per property.

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