Asking rents nudge downwards for a second month

Asking price rents fell for a second successive month in December, according to the latest buy-to-let index from LSL Property Services. But LSL said the lull was almost certainly purely seasonal, with rent rises due to accelerate again.

LSL, which owns national chains Your Move and Reeds Rains, said that last month the average rent in England and Wales fell by 0.8% to £711 per month.

On a monthly basis, rents fell in seven regions, with the biggest declines in the South-East and North-East, where they fell by 1.9% and 1.4% respectively. Rents in London fell for the first time since December 2010, with rents falling by 0.9%.

However, last year overall, asking price rents rose in all but two regions. The fastest-rising rents on an annual basis were in London where rents rose by 5.6%. The next biggest increases were in the East and South-East of England, with rents rising 5% in both regions. Rents fell in the North-East and South-West by 1.3% and 1.2% respectively.

Despite the average rent in England and Wales falling by 0.8% last month, the seasonal decrease was less than the 1.2% monthly fall recorded in December 2010.

For investors, the average yield dipped slightly to 5.2%. The average total annual return per property in December was 3.7%, compared to 2.7% in November. In cash terms, this was an average of £6,107 – equivalent to £7,611 in rent with a capital loss of £1,504.

If property prices maintain the same trend as the last three months, an investor could expect to make a total annual return of 4.8% over the next 12 months – equivalent to £7,841 per property.

Tenant finances deteriorated in December, with 10.7% of all rent late or unpaid at the end of the month, compared to 9.3% in November. Nevertheless, the seasonal increase was much lower than December 2010, when rental arrears rose to 11.7%. In December, unpaid rent totalled £300m, a 12% increase from the £263m unpaid or late in November.

The LSL index looks at asking rents, not achieved rents, across its portfolio of around 18,000 properties.

David Whittaker, managing director of Mortgages For Business, said the direction of the rental market gave him some concerns.

He said: “The seasonal lull in demand impacted average rents towards the end of 2011, but demand will be robust over the first few months of 2012 which will help strengthen prices. However, the problem we may face later this year is rental affordability.

“Overall, rents have been on the rise for the last two years, and there will come a point when average rents are simply too high for many people to afford. We then face the danger of rising rental arrears and a surge in demand for affordable rental property – demand that current stock levels cannot satisfy.

“This is why it is vital that lenders and the Government support property investors and landlords and make it easier for them to invest in multi-unit freehold blocks and Houses in Multiple Occupation. These are the property types that will help ease the rental sector’s burden and avoid a situation where people are unable to buy but also cannot afford to rent – the consequences of which would be very dire indeed.”