July 16, 2010 4:25 pm

Rental surge provides boost to landlords

Rents across the UK are returning to levels seen at the peak of the market in 2008, providing a welcome boost for buy-to-let investors.

The average rent in the UK rose by 1 per cent in June, the fifth consecutive month of rises, according to the latest buy-to-let index from LSL Property Services.

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Rents are now 3.2 per cent higher than a year ago - the equivalent of £23 more per month - taking the average rent to £673 per month, the highest level since November 2008.

London rents experienced the highest surge, rising by 1.9 per cent to £942 per month. Rents also rose in both the North-West and North-East by 1.4 per cent and 1.3 per cent respectively.

However, rents in the West Midlands fell by 1.7 per cent last month.

“Rents have continued their upwards trajectory, and are just a few pounds away from their peak levels in 2008,” said David Brown, commercial director of LSL Property Services. “The seasonal pick up was exaggerated by the squeeze in the supply of rental accommodation.”

Brown said rents in London were likely to rise much further as would-be buyers continue to be priced out of the housing market or unable to finance a purchase. “The increasing reliance on rental accommodation in the capital, combined with the constraints in its supply is pushing up rents faster than anywhere else in the UK,” he said.

Buy-to-let investors have also seen an increase in yields due to a decline in house prices in June. The average yield of a buy-to-let property now stands at 4.9 per cent, according to LSL.

The total return from investing in buy-to-let over the last twelve months fell slightly to 12.3 per cent in June as house prices fell slightly. The average landlord would have made £18,983 in the past year - a combination of £7,164 in rent and £11,819 in capital gains.

With the recent house price decreases, a landlord investing today can expect to make an annual return of 3.4 per cent over the next twelve months, said Brown.

“The recent changes in property values demonstrate just how vital it is for potential landlords to prioritise rents and tenant demand when investing. With house prices unlikely to climb significantly in the short-term, rental income will be driving landlords’ returns - as well as paying their mortgages,” he said.

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