This is according to the latest Buy-to-Let Index from LSL Property Services, which owns a lettings agent network including national chains Your Move and Reeds Rains.
In October, UK rents rose by 0.4% to £691 per month – surpassing September’s record high of £689. The annual inflation in the average UK rent has grown to 4.5%. If rent inflation continues at the same pace, the average rent will hit £722 pcm this time next year.
The average yield remained stable at 4.9% in October, as steady rent rises were matched by modest growth in the prices of rental properties.
David Brown, commercial director of LSL, commented: “Rents have been creeping upwards, month in, month out for the last year, and now stand just a few pounds shy of £700 per month. The recent increases are likely to steady slightly in the run up to Christmas – traditionally a slower time for the market. But a strong underlying growth will remain, as the key market dynamics are geared towards further rises.
“Constrained mortgage finance is choking off the number of first-timers able to get on the ladder, and would-be landlords’ ability to buy investment properties. With rising demand outpacing the increase in supply, rents can only go one way.”
Rents rose across the whole of the UK – except in Yorkshire and the Humber, where they fell by 1.4%. The growth was most pronounced in the South East, where rents rose by 1.2%, and the North East, where rents increased by 1%.
Brown explained: “It will be some time before the dust settles, but we’re likely to see a changing rental market at a local level in many places following the government’s changes to housing benefits. For instance in more expensive areas of London, the cap on benefits will weaken demand from tenants, alleviating upwards pressure. But we may see migrating renters move to cheaper outlying regions, pushing up demand and rents.”
Tenant finances were in better shape as landlords saw tenant arrears drop for the second consecutive month. Unpaid rent totalled £221m across the UK in October, down from £229.3m in the previous month. With just 9.3% of all UK rent unpaid during the month, it hovered just 0.1% above its best performance on record.
The rise in rents means that an investor buying property could now expect a total annual return of 8.1%, the equivalent of £13,799 on a typical rental property, according to LSL. With steadying house price inflation in the latter part of 2010, the average total annual return on a property has fallen from it’s peak of 13.4% in May. Over the past year, the average UK landlord made a total annual return of 9.6%, £15,531 – the equivalent of £7,430 in rent and £8,101 in capital gains.
