Rents have started to fall as landlords who rushed to acquire homes before the introduction of the extra stamp duty surcharge in April start to rent them out, providing tenants with a greater selection of properties to choose from, the latest figures show.
Rents for residential properties to let across England and Wales dropped by an average of 0.2% in May compared to the previous month and now stand at £792 per month, according to the buy to let index from Your Move and Reeds Rains.
On an annual basis, rents are 1.8% higher than May 2015 which is half the 3.6% annual rate of rental growth recorded just four months earlier.
Adrian Gill, director of lettings agents Your Move and Reeds Rains, points out that the volume of homes to let coming on the rental market has seen the supply-demand imbalance in the market narrow, which has had a major short-term impact.
“This is the equivalent of a flash flood for the rental market,” said Adrian Gill, director of lettings agents Your Move and Reeds Rains. “Just a month ago rents were heating up and spring was in the air – but this has been put on hold as a tide of new properties to let has disrupted the normal dynamics of supply and demand.”
A breakdown of the data reveals that rent increases in London slowed to just 1% over the 12 months to May 2016, which is significantly lower than the peak seen in September 2015 when rents in the capital were up 11.6% year-on-year.
By contrast, the East Midlands recorded rent rises of 7.3% over the year, followed by the West Midlands with 5.5% annual rent increases and the East of England with 3.6%.
All 10 regions of England and Wales saw rents in May increase compared with the corresponding month last year, albeit at a slower rate of growth across many areas.
Despite monthly rents dipping overall in May, rental yields are showing resilience thanks to a similar fall in property prices on a monthly basis. 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 May 2016, the same as the 4.9% a month previously in April.
Taking into account both rental income and capital growth, before property-specific costs such as maintenance, the average existing landlord in England and Wales saw total returns of 10.2% over the year to May, which is marginally lower than the 10.7% recorded a month earlier, over the 12 months to April, reflecting the recent slowdown in property price growth.
But when compared to the year ending May 2015, when this measure stood at 9.4%, landlords have actually seen stronger returns over the last 12 month period.
In absolute terms this means that the average landlord in England and Wales has seen a gross return of £18,769 over the last 12 months, before any deductions such as property maintenance and mortgage payments. Of this, the average capital gain contributed £10,057 while rental income made up £8,712 over the year to May.
Adrian Gill continued: “Landlords are vital in matching an escalating demand for homes from tenants. Such a scale of demand doesn’t look set to change dramatically just because of a few tax tweaks – so professional and accidental landlords will always be an essential part of the solution. Financial rewards for investing in property, taking on risk and maintaining homes will have to reflect the importance of landlords for our economy and our society.”