Average monthly private property rents in England and Wales are set to £800 per month by the middle of 2015 which will be a rise of 21% since 2010, new research shows.
Despite rent rises, tenant finances will gradually improve, with rent in arrears to halve between 2008 and 2018, says the study from LSL Property Services, one of the largest lettings agencies in the UK.
London’s average rent has increased by 18% over the last three years, with the latest increases touching 8% per annum. Meanwhile, rents in the South West haven’t changed at all from their levels at this point in 2010.
Based on demand since 2010 and expected changes in the housing market, LSL can forecast the trajectory of rents between now and the middle of the decade.
Revealing the details at a gathering organised by the Council of Mortgage Lenders, operations director Lucy Jones said that fundamentally buying a home is still becoming less affordable.
‘Renting was the future before the recession, it cushioned many during, and it’s still the future for millions. By the middle of this decade at least one in five people in the UK will be living in privately rented accommodation,’ she told the audience.
‘At some point in the summer of 2015, rents are set to reach an average of £800 per month. Such levels of demand show the practical importance of this industry and the importance of the financial mechanisms that make its expansion possible,’ she said.
Jones pointed out that there will serious regional variations. Rents in London are already 109% higher than in the North East. Over the next two years, London will see rents rise by 16%. Meanwhile, the East Midlands will see rises of around 8% and rents in the South West look likely to pick up by only around 1% by 2015, or less than half a percentage point a year.
‘The sheer scale of variation across the country is always something to behold, partly because that variation is becoming more pronounced. What is clear is that there has been a significant upheaval since 2008 in the rental market. And this has had a very real effect across the whole of England and Wales. But as a whole landlords have kept up with demand increasing supply by around 10% since 2008,’ said Jones.
LSL’s research also shows that the number of tenants in arrears has been falling since 2009. Based on the correlation between Office of National Statistics wage data and previous years’ rental arrears, this improvement is set to continue.
‘Progress will be slow, as wages and unemployment will lag behind economic recovery. But the long term trend will be steady. Between 2008 and 2018, we expect the total proportion of rent in arrears to halve,’ Jones explained.
She also told the meeting that there was no point in searching for some one to blame for the current lack of lending. ‘Deeper than that is the original need for millions of people in the UK to take on large portions of personal debt to buy their own homes. For some it’s paid dividends. For others, home ownership has proven a mainly cultural aspiration rather than a sound piece of financial decision making. That’s not necessarily the fault of lenders, that’s just how things have been in this country,’ she pointed out.
‘We think owning our homes means security. Mostly that’s just not true. In Germany, less than half the population owns their own home, yet it is generally accepted as the most prosperous Eurozone country. In the UK that stat is 64% of home owners.
It’s a statistic that gives away nothing about our quality of life or prospects for economic growth. We were susceptible, as individuals, to the wave of deleveraging because of a cultural acceptance that everyone should own their own home. We had built up our personal debt in an unprecedented way,’ she added.
She also pointed out that while economic expectations have changed and rents in many areas have risen rapidly, the private rented sector has actually been surprisingly stable. ‘Meanwhile, the purchase market has resembled a broken rollercoaster.
First time buyers have seen a boost from new government schemes this year, but the ability to raise any deposit at all has been severely reduced by the recession. As house prices accelerate, this long term trend towards renting will continue,’ she told the audience.
With the effect of the Help to Buy scheme, house prices could be rising at an annual rate of 3% by 2015. In spite of higher prices, gross rental yields will almost certainly reach 5.5% by the middle of 2015.
‘Whatever the regulatory outlook, the economic fundamentals will remain the same. Landlords will be critical in providing more homes for million of people who are no longer able to buy. Not just rents will rise. Gross yields are set to increase, too, and that should encourage investment from landlords but they will need finance to continue to keep pace with such demand,’ said Jones.
‘More finance can allow more homes, and that’s slowly happening. Buy to let advances are growing gradually, at what should prove a sustainable rate. And long may that continue. This year buy to let looks set to return to the same proportion of mortgage lending as it was in 2007,’ she explained.
‘The private rented sector is set to flourish in the recovery, if anything more vigorously than its performance in the recession,’ she concluded.