UK property rents fall for first time in 11 months

Property rents in the UK have fallen for the first time in 11 months, dropping by 1.2% in December to an average £684 per month, according to a new report.

Rents fell for the first time since January 2010, according to the latest Buy to Let Index from LSL Property Services, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

Christmas spending brought a surge in arrears, with 11.7% of all UK rent in arrears, rising from 9.7% in November. Total annual returns also declined as house prices continued a steady fall.

Despite the decrease, rents in December were 3.8% higher that a year ago. The average yield fell slightly to 4.9% in December, the first drop since January 2010, as rents declined at a faster pace than rental property values.

Rents fell fastest in Wales, down 2.6%, while the average rents in the southeast and London decreased by 2.5% and 2.3% respectively. However, rents did drop in all regions of the UK. The west midlands and southwest saw rents rise by 2.2% and 1.7%, while there were smaller increases in the east midlands and northeast.

‘December is traditionally a slower month for the rental market. Many prospective tenants are either away from home, or prioritise Christmas spending over budgeting to move. This year, the added arctic weather temporarily dampened demand, deterring many renters from hitting the streets and viewing properties,’ said David Newnes, estate agency managing director of LSL.

‘But the recent slowdown in rents is down to landlords’ pricing strategies. Landlords offering properties during the holiday season often lower the asking rent to avoid a costly void period. If a landlord cuts the rental price by 5% to fill a property immediately, he will save £275 over the year rather than seeing their property vacant for the duration of the month. Nevertheless, with the supply of mortgage finance to both first time buyers and would be landlords still constrained, we are likely to see rents restart their upwards march before the spring,’ he added.

Following a steady fall in property prices over the past three months, the total annual return on a property has dropped to 7% in December, the lowest return since November 2009. This is now the equivalent to £11,431, that is £7,332 in rent, and £4,099 in capital gains. If property prices continue to decline at the same rate of the last quarter, an investor entering the market now could expect to make a total annual return of £3,259 per rental property, equivalent to £8,211 in rent and capital losses of £4,953.

‘Landlords have seen an end to the post crunch bounce back in annual returns, and must view their portfolios as long-term investments. As the months of strong house price inflation fall by the wayside, the prospects for short-terms gain are slender. But with rents remaining historically very high, and tenant demand set to increase, buy-to-let provides very good investment prospects over the long-term,’ explained Newnes.

The Christmas period had a negative impact on tenant finances. 11.7% of all UK rent was unpaid or late by the end of December, rising from 9.7% in the previous month. Unpaid rent totalled £276 million across the UK in December, the highest total since December 2009.

‘The Christmas break has taken its toll on tenant finances. Many tenants have felt an additional financial pinch from Christmas spending, while others’ payments have been affected as a result of vacations over the holiday,’ said Newnes.

‘This rapid surge is a seasonal phenomenon, but tenants have been under steady pressure in recent months. Arrears have been rising since October as public sector spending cuts start to bite in many areas of the country. With unemployment set to increase this year, and rents likely to rise once more in the spring, more tenants will be at risk of falling behind with rent payments,’ he added.