Rents hit record as demand outstrips supply

Letting agents' signs in Selly Oak, Birmingham. Photograph: Christopher Furlong/Getty Images

Rents in England and Wales rose by 0.7% in June to reach a new record high of ?701 per month in June, pushing annual rent inflation to 4.1%. In London, rents broke through the ?1,000 a month barrier for the first time, rising by 1% to reach a new high of ?1,006 per month.

The latest LSL Property Services Buy-to-Let index shows that rental properties in London can be snapped up within a day of being advertised and there isn't enough rental property to match the soaring demand.

During the past year London rents climbed faster – 6.9% – than any other region of England and Wales, while steep increases were also experienced in the North East and the West Midlands, where rents increased by 5.1% and 4.6% respectively. In the past year, the only region in which rents fell was the east of England – by a marginal 0.3%.

Month on month, rents increased fastest in the West Midlands and the east (2% and 1.6%) and fell in only three regions: the east Midlands (-0.5%), the south-east (-0.2%) and Yorkshire and the Humber (-0.1%).

David Newnes, estate agency managing director of LSL Property Services, which owns the Your Move and Reeds Rains chains, said: "Tenant demand continues to reach ever higher peaks – and there simply isn't enough rental property coming on to the market to match it. In areas like London where competition for rental property is most intense, it's not unheard of for rental properties to be let within a day of coming on to the market.

"We've had five successive months of rent rises, but there is no sign of a let-up anytime soon. Despite several new deals on the market, securing a big enough mortgage remains a tall order for the average buyer. The climbing cost of living and renting is impacting how much renters can save for their deposit, and demand will remain high in short-term.

"In the long term, there is an even smaller chance of a significant slowdown. Just 102,570 new homes were completed last year – at a time when the UK's population increased by nearly half a million. This trend shows no signs of slowing. Excess demand will be driven into the private rental sector driving rents up further. Landlords thinking long-term will do well."

The average rent is now ?28 a month higher than June 2010, while the total annual return on a rental property was 1.3% in June, as the rental income received by landlords is offset against an annual decline in property prices. LSL said the total annual return is the equivalent of ?2,203 – ?7,486 in rent, with a capital loss of ?5,283.

If property values continue on their current trend, a property investor could expect to make a total annual return of 2.3% over the next 12 months – equivalent to an average of ?3,776 per property.

Tenant arrears decreased for the second consecutive month, with 9.3% of all UK rent unpaid or late by the end of June – down from the 11.5% of rent unpaid or late in May. Unpaid rent totalled ?257m across the UK in June, down 18% from the ?315m unpaid in the previous month.

But Newnes warned: "We've yet to see the full effects of public sector job losses, and as inflation remains high, many tenants' finances will face mounting pressure over the medium-term."

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