Buy-to-let landlords cash-in on record August rents
Rents in England and Wales are near their record highs once again, reaching an average of £743 in August.
It puts rents just £1 behind the all-time record, set in October 2012, according to Buy-to-let index run by LSL Property Services; and marks a return to soaring rental price inflation, following July's monthly increase of just 0.2%.
Rents increased by 1.3% in the year to August 2013, but rents in London rose three times faster to reach an average of £1,126.
Landlords are cashing in on the continued boom in rents: the average annual return on rental property rose to 6.2% in August, from 5.6% in July 2013. In cash terms, buy-to-let landlords raked in an average annual return of £10,207, including average rental income of £8,051 plus a capital gain of £2,156.
LSL said if rents continue rising at the same rate as they have over the last three months, the average buy-to-let investor will generate an annual return of 13.1% over the next 12 months – equivalent to £22,065 per property.
This explains why people are rushing into the buy-to-let sector – LSL said the pace of new lettings accelerated in August, with the number of new tenancies increasing by 8.8% compared to July. There were 13.7% more new tenants in August than there were in August 2012.
David Brown, commercial director of LSL Property Services, said: "A powerful surge of capital accumulation is re-joining solid rental income. And it seems that potent combination means landlords can look forward to even better returns over the next twelve months."
Tenants' finances are also improving, the survey indicates, with the total amount of rent paid late dropping by £10 million between July and August, with total arrears £263m.
Rents only fell during August in two regions: the North East (down 0.8%) and the East Midlands (0.3% lower).
Brown added: "The summer saw a step-change for first time buyers. Better availability of finance has allowed some households to leave the rental market. And rents certainly felt the short-term impact of that. But releasing a blast of that pent-up pressure to buy a home is unlikely to change the long-term trend to renting.
"Autumn brings the seasonal peak for the rental market, in part due to the spike caused by student renters, and the sheer volume of lettings activity shows demand this year is as strong as ever."
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.