Posts Tagged ‘first’

First ever rent rises in January; Tenant arrears at 10.7%

Friday, February 17th, 2012

The rental market sprang back into life early this year, increasing 0.1% to £712 per month and the first rise in three months.

However, rental arrears hit a high of 10.7%, reflecting the poor economic backdrop.

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Annual rental inflation increased to 4.3% from 4% in December, a £30 rise in the average monthly rent in the past year, according to figures from LSL Property Services.

Rents rose the fastest on a monthly basis in the West Midlands and South West, where they increased by 1.8% and 1.5% respectively.

In London, rents rose by 0.8%, where they have only fallen once in the past 13 months. However, rents fell in four regions, with the biggest declines in the East of England and Wales, where they fell by 1.7% and 1.5% respectively.

London recorded the highest annual rental rises at 6.3%, followed by the East of England where rents rose by 5.9%, but fell in the North East by 0.7%

David Brown, commercial director of LSL Property Services, said the depth of the underlying demand for tenancies over Christmas brought greater competition for rental property and halted the usual downward pressure on rents.

“In January, activity has already moved up a gear in many parts of the UK, pushing rents up once more in a small, but significant rise,” said Brown.

“Mortgage lending has shown signs of improving in recent months, but transactions remain at almost half their historic levels, and the increasing dependency on rental accommodation will drive further rent rises over the long-term.”

Rents rise in all regions for first time on record

Friday, October 21st, 2011

Rents recorded monthly rises in all regions for the first time on record in September, according to the latest Buy-to-Let Index from LSL Property Services plc.

In September, the average rent in England and Wales rose by 0.7% to £718 per month, surpassing the previous record high of £713 in August.

With annual rental inflation at 4.3%, the average rent is £29 pcm higher than September 2010. The average yield in September rose from 5.2% to 5.3%.

On a monthly basis, rents rose in all regions of England and Wales for the first time on record. As a result, rents hit record highs in six regions – London, the South East, Yorkshire and the Humber, the East of England, Wales and the East Midlands.

Rents increased the fastest in the South East and the East Midlands, where they rose by 1.8% and 1.1% respectively compared to August, while the smallest increases were in the West Midlands and the North East, where rents rose by 0.2% and 0.3%. However, over the course of the last year, London’s rents have risen at a faster rate than any other region, increasing by 5.8%.

The next biggest annual increases were in the South West and the West Midlands, where rents rose 5.4% and 5.1% respectively.

David Brown, commercial director of LSL Property Services comments:

“It’s not just a regional phenomenon, localised to London and the South East – rents are rising across the board. In areas of the highest demand, such as the capital, competition is driving up rents at a faster rate elsewhere – but no region has been immune to the growing demand for rental homes from frustrated buyers.

“In many cases, buying a home is now cheaper on a monthly basis – provided renters can get past the stumbling block of the substantial deposit requirements.

“For the majority, saving a £25,000 deposit is a Herculean task as inflation and rents climb – and most would-be buyers are biting the bullet and prolonging their stay in increasingly costly rental accommodation.

“As things stand, we won’t see competition amongst prospective tenants diminish without a substantial expansion in the supply of rental properties available on the market.”

The total annual returns on a rental property dropped back in September after property prices fell annually. The average total annual return in September was 1.8%, the equivalent of £3,005 – £7,661 in rent, with a capital loss of £4,666.

However, property price changes in the last quarter have held up better than in the previous twelve months, and if they maintain the same trend as the last three months, a property investor could expect to make a total annual return of 8% over the next 12 months – equivalent to £13,070 per property.

David Brown continues:

“Rising rents may prove to be a headache for tenants, but they are improving the outlook for investors – which may in turn encourage further investment in the private rented sector. Despite capital losses after house prices fell annually, growing rental incomes means returns are still in the black.

“Yields have risen to their highest level since the housing downturn, outstripping many alternative investments. With house prices yet to resume their upwards climb, there are opportunities for prospective investors to secure profitable bargains.”

Tenant arrears improved markedly, following August’s seasonal increase, dropping to their lowest level since April 2010. Just 8.6% of all UK rent was unpaid or late by the end of September – down from the 10.7% of rent unpaid or late in August.

Unpaid rent totalled £243m across the UK in September, down from the £300m unpaid in the previous month.

Brown concludes:

“Shelter’s recent research shows rising rents are placing renting households under mounting financial pressure. But this has yet to manifest itself in rising tenant arrears, which have remained markedly low in 2011 – and even dropped last month as summer holidaymakers got their finances back in order following vacations.

“But over the longer term, landlords have become less forbearing, looking to replace tenants with payment issues quickly in the hope of higher rental income.

“A changing tenant mix has also helped keep a lid on the volume of payment problems in the last year. More affluent renters who would normally have been buyers are remaining in rental accommodation, and these have been less severely affected by rent rises.

“Nevertheless, monthly rental costs are taking their toll on a minority of renters, who have no option but to cut back other areas of monthly expenditure to compensate, and it is crucial that landlords remain vigilant to resolve any payment issues early.

“Unemployment is rising, and as more tenants’ employment situations change and rents rise, a growing number of households will come under greater and greater strain.”

Paul Jardine, receiver and director of Templeton LPA, the surveyors practice specialising in LPA receiverships, comments:

“The eighth month of rental inflation may steal the headlines but it is the drop in tenant arrears that will be a cause of celebration for many property investors.

“Following the holiday season, many returning holidaymakers found themselves out of pocket in August and experienced payment difficulties, but these issues were ironed out by the end of September.

“But over the longer term, many landlords have changed their behaviour to help limit rental arrears through a combination of increased vigilance and communication with tenants, and showing less forbearance with those in substantial arrears.

“However, despite the improvement in arrears in September the recent unemployment figures should give pause for thought. At the same time as rents are rocketing up, unemployment has crept above 8%, and a growing number of tenants are likely to see their jobs under threat.

“Tenant finances have been in better shape than expected in the past year, but we are concerned that rental arrears will mount as the planned public sector job losses take their toll on the labour market.”

Jonathan Moore, director of flatsharing website, comments:

“First-time buyers are trapped between a rock and a hard place. The average first-timer can’t provide a big enough deposit to get a mortgage, which is increasing demand for rental accommodation and pushing up rents.

“But with the cost of renting rising at almost twice the rate of earnings, it’s even harder to save for a deposit – a difficult task compounded by rampant inflation and savings rates at unprecedented lows.

“Many renters are turning to flatshare as a cheaper option – and this sector of the market is growing rapidly. However, unless more money is made available for higher LTV lending, the whole rental market will continue to bear the brunt of frustrated buyer demand, and rents can only go one way.”

Rents rise for first time in 2011

Friday, March 18th, 2011

Rents rose for the first time this year in February, according to the latest Buy-to-Let Index from LSL Property Services plc.

In February, the average rent in England and Wales rose by 0.2% to £684 per month, with rents now 3.9% higher than in February 2010. The average yield increased to 5% in February, as the rent increased at a faster pace than rental property values during the month.

Although London recorded a modest increase in rents of 0.3% compared to January, rents have now risen by 7.7% in the last 12 months, almost twice the national average and reflecting the especially tight market in the capital.

The greatest monthly increases were in Wales, where they rose 1.9%, the North West and the East Midlands, where they rose 1.1% and 0.8%. The biggest decreases were in the North East, where rents fell 1.4%, Yorkshire and the Humber and the South West, where they fell 1.2% and 1% respectively

David Brown, commercial director of LSL Property Services, owners of Your Move and Reeds Rains comments:

“The fierce competition among renters in many areas of the country has cut short the traditional lull we tend to see between December and February. The consistently constrained level of lending to home buyers has bolstered demand – and rents – in the private rental sector during what is typically a slower period. 158,000 fewer first time buyers were unable to enter the market in the last 12 months, compared with three years ago. With the mortgage market even more sluggish since the start of 2011, this backlog of frustrated buyers has increased even further and rents have risen correspondingly. “

The total annual return on a property is now 3.9% as the slight fall in property prices over the course of the past year has been counteracted by a strong annual growth in rents. The total annual return is now the equivalent of £5,730 – £7,317 in rent, with a capital loss of £1,587. However, if property values continue as they have in the last three months, over the next 12 months, a property investor could expect to make a total annual return of £5,933 per rental property[i] – £8,202 in rent, with a capital loss of £2,269.

David Brown continues:

“Over the past year, extremely strong rental income has underpinned landlords’ annual returns. With house prices unlikely to rocket up as the year progresses, rents will continue to provide the lion’s share of returns for property investors.”

Tenant finances continued to deteriorate in February, with 12.6% of all UK rent unpaid or late by the end of February, an increase from 11% in the previous month. Unpaid rent totalled £296m across the UK in February, up from £258m in January.

Brown concludes:

“The growth in tenant arrears is an early indicator of the impact of the wider economy on households. At a time when rents are close to all-time highs and rising once more, many tenants are feeling the financial squeeze of spiralling costs of living compared to sluggish pay growth. But we must remember that the figure is not representative of all renters. It is a minority in severe financial straits that are contributing to the growth in arrears – while the vast majority of landlords do not encounter difficulties in receiving rental income.

“Nevertheless, the figures should serve as reminder to property investors that active and prompt intervention is necessary at the first sign of a tenant showing signs of difficulty in paying the monthly rent cheque, or they themselves will see mounting mortgage arrears.”

Paul Jardine, director of Templeton LPA, comments on LSL’s February Buy-to-Let index:

“Persistently high tenant arrears are proving to be a growing headache for many landlords. Tenants are beginning to feel the financial squeeze triggered by near-record rents, growing inflation and the VAT hike. With public sector spending cuts continuing to take its toll on many tenants’ employment situation, rental arrears are likely to remain stubbornly high over the medium term.

“The good news is that two years of historically low interest rates have kept most landlords’ monthly mortgage payments at a low level, keeping buy-to-let mortgage arrears in check. But when rates rise, and many landlords face higher monthly mortgage costs, it’s crucial that they do not take their eye off the ball, to ensure tenant arrears don’t escalate further and avoid falling behind with their mortgages.”

Richard Sexton, business development director of e.surv, commenting on the LSL Buy-to-let Index said:

“The mortgage finance is simply not available to young professionals – the potential buyers who need it most. That means potential first time buyers remain confined to the rental market.

“As lenders keep their hands in their pockets, tenant demand has soared, luring in property investors who are seduced by the combination of high rental incomes and an underlying weakness in housing prices. Investors will sit cosily in the knowledge that rental yields will remain a safe and steady source of profit. As rents rise, it becomes harder for tenants to save for a deposit for their first home. It’s a vicious circle.

“With foreign investors making a land grab for bricks and mortar that British buyers can’t afford, owning a property in London is fast becoming the reserve of a privileged few. This has pushed the capital’s rental market into overdrive as the backlog of first time buyers scramble over one another to secure the best rental properties”

First Time Buyer Levels Decrease

Tuesday, December 29th, 2009

The proportion of first time buyers (FTBs) looking to put a foot on the property ladder has reached its lowest level for twelve months according to the National Association of Estate Agents (NAEA).

The monthly market survey of the NAEA members found that in November, only 19 per cent of registered buyers were FTBs, the lowest since December 2008 when levels plummeted to 11%.

This figure pales in comparison to six months ago when 43 per cent of the market was made up of FTBs.

President of the NAEA Gary Smith said: “The decline in the first time buyer segment is exactly what the NAEA anticipated and warned the Government about some months ago. Any tax holidays result in a distortion in the market and in the case of Stamp Duty needed to carefully managed and phased out rather than falling of a cliff. Unfortunately as first time buyers often form the foundation of selling chains there could be repercussion throughout the sector.”

On a much more positive note, given the usually seasonal lull the number of sales remained steady in November with an average of eight sales made per branch. While the average number of properties available for sale per branch increased slightly from 57 in October to 58 in November.

Gary Smith added: “It is encouraging to see that the market is in a stronger and more stable position than it was twelve months ago. To sustain these improvements, the Government should put more pressure on banks to ensure lending is available.”