UK Rents hit record high

UK rents exceeded their pre-downturn peak in September to hit a record high, according to the latest buy-to-let index from LSL Property Services.

In September, UK rents rose to £689, surpassing those seen in August 2008, the previous market peak.

The average UK rent is now 3.1% higher than the same time last year, following eight consecutive months of rises. The average yield remained stable at 4.9% in September, as rising rents were matched by modest house price growth in the past three months.

David Brown, commercial director of LSL Property Services, says: “Landlords have seen tenant demand continue to hit new heights. The mortgage market remains tight and many buyers simply cannot get the finance to get a foot on the property ladder.

’And with potential spending cuts on the horizon, and uncertainty over the direction of the economy, many buyers are choosing to remain in rented accommodation for longer – perhaps to wait for house prices to fall.

“As a result, demand for rental accommodation is increasing, and supply is not rising fast enough to match it. This has turned the buy-to-let market into a landlord’s market, and many renters face increasing rental costs while they delay their house purchase.”

The resurgence in rents has been driven by a strong performance from London and the South East in 2010. In September, London rents hit their highest on record. Landlords increased their rents by 1.1% to £972 per month in September. They have risen by 6.8% since January.

Rents in the South East rose by 0.9% in September, while those in the East of England and the West Midlands rose by 1%. The South West and North West reported modest falls.

Brown adds: “The supply and demand imbalance is particularly severe in the capital and London is emerging as a different market entirely from the rest of the UK. There is an acute lack of affordable housing in London, and would-be buyers cannot meet higher house prices – or get big enough mortgages.

“Traditionally, London is seen as a low-yield market. But this isn’t the case. Despite the strong performance of house prices in the capital in the past year, yields haven’t fallen sharply. With rental properties so sought after in the city, landlords have been able to continually hike rents since January and are seeing a yield just 0.1% shy of the UK average.

“In the last twelve months, the average London landlord would have made an annual total return of nearly £34,000 on a typical rental property.”

The rise in rents means that an investor buying property could now expect a total annual return of 9.2%, the equivalent of £15,592 on a typical rental property . Over the past year, the average UK landlord has made a total annual return of 10.4%, £16,567.