Landlords have pushed up rents for the sixth consecutive month according to the latest Buy to Let Index from LSL Property Services.
Prices were raised by 0.5 percent in July, which means the average UK rent is now £676 and stands 2.3 percent higher than a year ago.
Rents are just £12 per month shy of their peak two years ago and with the increase in rents, the average yield was 4.9 percent in July.
David Brown, LSL’s Commercial Director, said: “Rents are still playing catch-up with the gains house prices made in the last year.
“The recovery in prices 12 months ago caused an exodus of accidental landlords from the market, ending the glut of supply of rental accommodation.
“Although house price rises have levelled off, landlords are still reaping the benefits of the constrained supply and the improving yields have restored a healthier balance to the dynamics of property investment.”
Rental arrears have hit a new low of £213 million and 9.2 percent of UK rent was unpaid in July. This was a fall from 11.2 percent at the turn of the year and is the lowest level since.
LSL Property Services, which began compiling its Buy to Let Index figures in 2008 says in July, £212.9 million of rent was unpaid, a substantial drop from its peak of £361million in August 2008, and just 434,803 tenants fell into arrears in July, 26,761 less than in June.
The drop in arrears means that the average yield, adjusted for voids and arrears, was 4.5 percent in July, which represents an increase of 4.4 percent in June.
Brown said: “There’s no evidence that the increase in rents has led to a surge in arrears. In fact as rents have risen in the past six months, arrears have steadily dropped. The key is the current tenant mix.
“Thousands of frustrated first-time buyers are staying for longer in the private rental sector. These tenants are in better financial state and are better able to meet rising rents in full and on time.”
However as a result of the recent declines in house prices, the total return from investing in buy to let over the last year dropped slightly to 10.1 percent in
July.
The average landlord would have made a total return of £15,961 in the past year, made up of £8,706 in capital gains and £7,255 in rental income.
An investor buying property now could expect a total annual return of 3.5 percent, the equivalent of £5,838.
The lack of house price inflation in the past three months means that if conditions remain constant, all of these gains will be driven by rental income.
Brown concludes: “Rents are still heading upwards towards their peak level two years ago and yields are at their highest this year.
“The current market presents a golden opportunity for property investment before house prices resume their long-term upward march.
“The underlying fundamentals that underpin sound property investment – demand and rental income – look set to remain strong.
“With a sensible investment model, a landlord can expect to see healthy returns, with any future capital appreciation a bonus.”
