Good news for Landlords as rental market strengthens

Landlords celebrated a golden scenario of rising rents, rising prices, falling tenant arrears and lower void periods in July according to the latest research from LSL Property Services, which owns the UK's largest lettings agent network, including national chains Your Move and Reeds Rains.

Rents in England and Wales rose at their fastest pace in a year in July, up 0.5% compared to June, the second consecutive monthly increase.

Overall, tenants are still getting a good deal. Rents are 4.5% below the peak last August, but the strengthening housing market and growing signs the recession is over suggest sustained rent declines are now a thing of the past.

Tenant finances are in better shape too. Arrears fell sharply in July, dropping to 11.2% of all rent owing from 11.6% in June, meaning rent totalling £247m had not been paid on time. 517,000 tenants were behind with their rent at the end of July, down from the 529,000 who had not paid up by the end of June. One third of these had not paid their landlord for more than a month and almost one quarter (22%, or 115,000) were facing action by their landlord to evict them.

Landlords are also having less difficulty finding tenants. Voids, the number of days a property stands empty each year, have fallen by 2.5 days in the latest period from an annualised 29.2 days to 26.7. These 2.5 extra days’ rent per year will net landlords collectively an extra £181million that would otherwise have been lost.

Yields slipped slightly in July from 5.04% to 5.02% because rent increases were outstripped by stronger house prices. But, after adjusting for the improvement in longer term arrears and void periods, the effective yield actually rose slightly, from 4.59% to 4.61%.

David Brown, commercial director of LSL property services said: “Landlords finally have reason to celebrate after a tough eighteen months. There was a glut of rental supply from the middle of last year as thousands of people who were struggling to sell homes put them up for rent instead. This additional supply from those less motivated to achieve market rents forced other landlords to put prices down and led to declines in overall rental levels.

“With the housing market now recovering, the economy thawing, and tenant finances in better shape evidenced by lower rent arrears, rents are starting to rise again.

“Short-term excess supply is now disappearing from the market and landlords are filling properties more quickly. Rents are still lower than a year ago, so tenants can find good deals, but they should move quickly to snap up the best rented homes.”

The upswing is being led by London and the South East which are both seeing the strongest recovery in rents. These two regions also have the lowest arrears and rented homes stay unoccupied for the shortest time here too. In London, a typical rented property is unlet just 18 days per year, more 9 days less than the average and less than half the time homes are sitting vacant in Wales and the North East.

Despite recent improvements, tenants are still most delinquent in Wales. Almost 15% of rent was unpaid there. Overall, Wales is offering landlords the poorest return – after adjusting for voids and long term rental arrears, yields are just 3.4%. Yields were best in the North West at 5.6%. Even though arrears and void periods there are above average, rental levels are good compared to relatively low house prices. See table below for full data.

David Brown added: “Just as the housing market recovery is beginning in London and the South East, so too the rental market is gaining ground there most quickly. Landlord returns vary widely around the country, however. Buy-to-let is a sound investment only if landlords really do their homework, pick properties which with wide appeal which won’t sit empty for months, and select tenants with good payment references. A high rental value on an empty property brings a zero return. A tenant who fails to pay is worse still.”