Buy-to-let continues to provide double-digit bumper returns for investors with rents currently rising at the fastest pace since last autumn.
The latest buy-to-let Index from Your Move and Reeds Rains shows that rents rose by 0.3% month-on-month in April, which was the fastest rate for six months, to reach an average of £793pcm across England and Wales.
Rents in the East Midlands, West Midlands and East of England are now at an all-time high.
Second only to London in absolute terms, rents in the East of England has seen a new all-time record of £848pcm in April, on the back of 4.8% rent rises over the last year. Second in terms of annual rent rises, up 6.2% on last April, the West Midlands is now home to average rents breaking through the £600pcm barrier.
However, leading England and Wales by some distance, property to rent in the East Midlands has seen annual rent rises of 8.5%. This takes rents in the region to a new all-time record of £616pcm as of April.
On a monthly basis, the fastest increases in rents were seen jointly in the East of England and the South East, both witnessing rents rise by 1% between March and April. The North East property market follows by this month-on-month measure, with rents now 0.8% higher than in March 2016. In all three of these regions the latest monthly rent rises represent an acceleration compared to relatively more subdued increases earlier this year.
Buy-to-let remains an investment phenomenon which is outperforming all major asset classes, with total annual returns from buy-to-let properties reaching 10.7% in April or £19,538 in absolute terms over the past 12 months. Of this, the average capital gain contributed £10,815 while rental income made up £8,723 over the 12 months to April.
Total returns in April were slightly lower than the 11.4% recorded a month earlier over the 12 months to March, but higher than 9.8% returns over the 12 months ending in April 2015.
While a recent surge in capital values has boosted total returns for existing landlords, the same trend has suppressed rental yields a little for those aspiring to become landlords, or professional landlords looking to grow their property portfolio. As rents rise alongside property prices, rental yields are proving reasonably resistant to rising purchase prices. However, the gross yield on a typical rental property in England and Wales (before taking into account factors such as void periods) is now 4.9% as of April 2016, compared to 5.1% in April 2015.
Adrian Gill said: “Yields and returns have been remarkably steady in the face of an onslaught of hostile rhetoric and regulatory hoops. And all else being the same, there is a chance that gross yields could rise marginally, to take account of any extra costs and complexities associated with being a landlord – such as the stamp duty surcharge.
“More change is on the way, and landlords will need to take appropriate financial advice on how changes to the tax system could affect them – as well as ensuring that their properties and tenancy agreements comply with every single rule and requirement. But this latest imposition is actually not a tax on existing or accidental landlords. Actually, the stamp duty surcharge is a barrier to entry. The danger for tenants is that this new rule will prevent new houses and flats to rent coming on to the market. The advantage for landlords in some areas could be less competition. But anyone trying to grow their rental portfolio will now need to spend even more time making the right decision – and as of last month more money too.”
Tenants are getting better at being able to manage higher rental payments, as reflected by the fact that rent in arrears fell to 8.1% of rent due in April, which compares very favourably to the all-time high of 14.6% of all rent payable in arrears – set in February 2010.
Gill added: “All the signs are right for a strong improvement in tenant finances. Wages are finally showing a bit of exuberance and employment has never been higher. But rents haven’t ever been higher either in much of the country. There is a powerful trend underpinning the affordability of renting for a large majority of Britain’s tenants, but there are also serious shortages of homes to let in all the same places that people want to live.
“Rental arrears reflect this mismatch between supply and demand. Waves of interest from the bulk of financially healthy tenants are capable of pushing up rents across the market. But unless landlords are allowed to respond by investing in new homes then supply will not quite ever be able to keep up. This is the mechanism that very soon could demonstrate the misguided nature of the latest targeting of landlords from the UK authorities. Tenants will always lose out if the bottom line is a shortage of flats to rent or houses to rent in local markets.”