Buy-to-let investors cash in as rents hit a new record
09-20-2014
Rents have reached an all-time high, a study suggests, with landlords making a 13pc total return in a year
Research published this week showed the effect high property prices are having on landlords' returns, especially in the South West Photo: keith morris / Alamy
By Kate Palmer
The cost of renting has risen to an all-time high of £761 a month, according to a buy-to-let index.
The figures were published by a major lettings network which said it was a peak month for tenants to look for new homes.
LSL Property Services, which owns chains Your Move and Reeds Rains, said rents rose 2.4pc in the 12 months to August across England and Wales, meaning they have edged £3 higher than a previous record set in October 2013 of £758 a month on average.
The study also reflected how buy-to-let investing had been growing in the past year, with rents and capital growth combining to deliver a single year return of nearly 13pc.
The findings have sparked fresh fears for the ability of "generation rent" to find affordable homes.
On a month-on-month basis, rents increased by 1.1pc compared with July, according to the report, which is based on rents achieved on around 20,000 properties.
LSL's records go back to January 2008.
David Newnes, director of Your Move and Reeds Rains, said: "Autumn is when more people move to take up new opportunities, to build new careers and to start new chapters."
Average rents in seven out of 10 regions of England and Wales were higher than a year ago.
The South West recorded the strongest year-on-year rise, up 3.5pc to £651, followed by the South East, up 3.4pc to £788.
Rents in Wales, the West Midlands and the North East were lower typically than they were a year ago.
London rents rose 3pc in the year to £1,160.
Campbell Robb, chief executive of charity Shelter, said: "Successive governments' failure to build enough affordable homes and soaring house prices are leaving more and more families with no choice but to live their lives in expensive and unstable rented homes, never certain of what the future holds.
"And sky-high rents mean hopes of escaping the 'rent trap' are fading fast for many."
Housing Minister Brandon Lewis said the LSL study was an "inaccurate reflection of the private rented sector" because it only looked at new contracts. He said official figures showed rents had fallen every year in real terms under the current government.
A combination of rising rents and sharp increases in house prices has made buy-to-let highly profitable in recent years.
The LSL study suggested landlords had seen a gross average return of 12.7pc in the past year. This typically, was £8,233 in rent and £13,066 in capital gain, before taking tax, mortgage repayments and maintenance costs into account.
Landlords have also seen the cost of buy-to-let mortgages fall as well as choice flourish in the past year.
Telegraph reader Cathy Colston recently told this newspaper how she quit a senior role at Boots to turn her buy-to-let hobby into a full time job, saying she had replaced her salary within four years.
Mrs Colston owns nine properties across Bath, Cardiff and Bristol, where landlords have reaped some of the highest buy-to-let returns. In the past year, rents in the South West have increased by 3.5pc, outstripping the national average of 2.4pc.
Buy-to-let: a wise investment?
According to research conducted by this newspaper, buy-to-let profits could dry up by 2017. As mortgage rate rises loom, recent buy-to-let investors could see their cash flow turn negative in just three years, although for now cheap, fixed landlord mortgages remain readily available.
Campaigners have warned that rent rises are unsustainable, further dampening prospects for prospective investors.
Alex Hilton, director of pressure group Generation Rent, said it was "mathematically impossible" for landlords to get more money from tenants and gains in an ever-inflating housing market. "Without a calming intervention this will crash heavily," he said.
Bad news for tenants? Arrears on the rise
Tenants are increasingly unable to support rent rises, the research also suggested. Currently 8pc of tenants are in arrears – totalling £279m in unpaid rent – which is up from 7.3pc in July this year.
David Newnes, director of the estate agents that carried out the research, said that tenants have still benefited. "Property investment means rents are now only 1pc higher in real terms than at the start of 2010," he said.
"Furthermore, landlords have benefited from higher property prices, which is helping portfolios to expand and more homes become available to let."