Private rents soar faster than house prices for first time in two years and hit record high of £789 a month
08-15-2015
•Rents rose at their fastest pace since 2009
•Rent arrears also soared 8.7% of all rent payable in June, from 7.6% in May
•Biggest annual rents rises are in the East, where they soared 13.8%
By Camilla Canocchi for Thisismoney.co.uk
Private rents grew faster than house prices last month for the first time in nearly two years and hit a new record high, a study has showed.
The increasingly less affordable rents have seen the proportion on people in arrears also soaring in June, although this is still below the levels reached during the recession.
The average rent jumped by 5.6 per cent to an all-time high of £789 last month compared to a year ago - the fastest pace of growth recorded since 2009, when the buy-to-let index by estate agents Your Move and Reeds Rains started.
Rising fast: Rents soared faster than house prices in June for the first time in nearly two years
House prices, on the other hand, were 4.5 per cent higher in the year to June, according to the report. Private rents were 1.4 per cent higher compared to May, when they had soared by 4.5 per cent on an annual basis.
Adrian Gill, director of Your Move and Reeds Rains, said: 'The pedal is pressed to the metal in the rental market. Not only have rents hit a new all-time record high - but we have never seen them rise so quickly.'
'Growing wage packets and a strengthening economy mean that a greater number of tenants are able to afford higher rents. With such an overall shortage of housing in the UK, rental costs are primarily driven by the amount tenants are capable of paying.'
The number of homes on the market fell to a two-and-a-half-year low during January as sales picked up despite the winter weather, research showed today. PRESS ASSOCIATION Photo. Issue date: Thursday February 11 2010. The average estate agent had only 55 properties on their books during the month, down from 59 in December and the lowest figure since July 2007, according to the National Association of Estate Agents. See PA story MONEY House. Photo credit should read: Chris Radburn/PA Wire
Young homeseekers face affordability crisis as shortage of...
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The report, which is based on rents achieved on around 20,000 properties, shows that London continues to be the city with the highest rents, which rose 9.6 per cent to a new record of £1,241 in June.
It comes as rents in England are almost half of tenants’ average pack packet, according to a separate report from the English Housing Survey, based on research in 2013-14.
It show tenants paid an average of 47 per cent of their net income in rent - and in London, this rises to a whopping. 72 per cent.
RENTS ACROSS ENGLAND AND WALES - JUNE 2015
| Rents June 2015 | 1 month change | Annual Change | |
|---|---|---|---|
| London | £1,241 | 2.8% | 9.6% |
| East of England | £839 | 2.4% | 13.8% |
| South West | £658 | -1.3% | 1.7% |
| Yorkshire & The Humber | £550 | 0.7% | 2.1% |
| North West | £593 | 0.6% | 1.5% |
| Wales | £567 | 1.9% | 1.1% |
| South East | £778 | -0.2% | 2.2% |
| North East | £516 | 1.0% | 1.8% |
| West Midlands | £575 | 0.8% | 1.7% |
| East Midlands | £579 | 1.5% | 1.6% |
| England & Wales | £789 | 1.4% | 5.6% |
| Source: Your Move and Reeds Rains |
The Your Move/Reed Rains report shows annual rent rises in the East were largest, at 14 per cent annually to stand at £839.
This is the fifteenth consecutive month of accelerating rent rises seen in the region and goes alongside rapid growth in purchase prices in the East, according to the report.
On a monthly basis, rents fell in the South East and the South West.
Mr Gill added: 'Annual rent rises in the East are nearly half as fast again as in the capital. It seems like we might have a new hotspot on our hands.'
Soaring: The cost of renting properties from private landlords has been on a constant upward trajectory
Rents have been rising out of line with inflation from the beginning of the year
Given the fast rising cost of renting a home, it is perhaps unsurprisingly that rents arrears lifted to 8.7 per cent of all rent payable in June, from 7.6 per cent of all rents in May, and 7.8 per cent compared with a year ago.
But Mr Gill said: 'While any uptick in the proportion of rent in arrears is a step down the wrong path, this should be seen in context.
'The overriding trend is still towards lower proportions of rent in arrears - far lower than was seen during the financial crisis.'
The report said the rise in rents came last month, despite official figures earlier this week from the Office for National Statistics showing that inflation slipped back to zero in June, from 0.1 per cent a month before.
It said these moves underscore a new trend since the beginning of the year that has seen rents rise out of line with inflation.
Rising: The proportion of tenants in rent arrears soared to 8.7 per cent in June
The report comes as recent study showed Britain is the most expensive country to rent a home in the whole of Europe as demand outstrips supply.
Separate figures from the Association of Residential Letting Agents showed that the number of properties available to rent decreased sharply in May to reach the lowest level recorded this year.
Meanwhile, landlords saw total returns, which include capital value gains and rental income, of 9.2 per cent on average in the year to June. This was down slightly from 9.3 per cent in May and 11.9 per cent in the year ending June 2014.
This means the average landlord in England and Wales has seen a return of £16,216 in absolute terms, before deductions such as mortgage payments and maintenance.
Rental yields: Rental income for landlords was £8,270 over the twelve months to June
Of this, the average capital gain contributed £7,946 while rental income made up £8,270 over the twelve months to June, according to the report.
Given the high returns, many wannabe landlords have ventured in the market, with buy-to-let loans making up almost 20 per cent of all new mortgages, sparking fears of a new buy-to-let property bubble.
In last week's Summer Budget, the Chancellor George Osborne announced cuts to mortgage interest tax reliefs that landlords can claim.
Currently landlords can claim tax relief on monthly interest payments at the top level of tax they pay of 45 per cent. From April 2017 this will be set at the basic rate f tax – currently 20 per cent.
Mr Gill said the moves could lead to further rent rises as landlords may decide to pass on these costs to tenants.