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National rents are bouncing back up

July 2, 2012 | Landlord News  

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The average rent in England and Wales is on the up again, with rents rising for a second consecutive month in May to bring the average rent up to £712 per month, back to the level seen in January. The rise of 0.4% in May makes the average rent in  England and Wales 2.3% higher than in May 2011.

The figures come from the latest buy-to-let index from LSL Property Services, owners of national chains Reeds Rains and Your Move.

Rents increased in most regions. The rents in the North-West rose by 1.7% and in the East Midlands by 1%, making these the two highest risers. Four regions actually fell from April, including the North-East where rents fell by 1% and in the West Midlands, where rents fell by 0.9%, making these the two largest falls.

Compared to last year, only three regions have seen rents fall. They fell by 1.5% in the East Midlands, 0.7% in Wales, and 0.3% in the North-East. On the opposite end of the scale, rents in London surged to a new all-time record high, increasing by 4.2%. Rent increased by 0.6% in May compared with April, bringing the average London rent up to £1,038 per month, beating the previous all-time high of £1,033 from November 2011. The South-East saw the second highest annual increase with a 3.1% rise.

The commercial director of LSL Property Services, David Brown, had this to say, “The end of spring has brought with it renewed activity in the rental market, and rents have returned to the level seen before the impact of the Stamp Duty deadline rush by first-time buyers.

“The reality is that thousands of frustrated buyers are still financially trapped between a rock and a hard place.

“Historically high rents and rock-bottom savings rates are hampering attempts to save for the larger deposits banks now require – not to mention meeting the cost of the reinstated stamp duty tax. In turn, fewer tenants are able to leave the sector, and the strong tenant competition is pushing up rents as a result, making saving for a deposit harder still.

“However, it’s not just involuntary renters that are adding to demand. Given the current concerns over the economy and labour market, the flexibility of renting is proving attractive for those adopting a wait-and-see approach to house purchase. Given this appetite for rental accommodation, rents are unlikely to see sustained declines any time soon.”

The average total return on a rental property has risen to 4.8% in May, up from 3.7% in April. This means that the average annual return is £7,912, with rental income of £7,666 and a £245 capital gain.

If property price trends continue as they have done for the past three months, then the average property investor in England and Wales could make a total annual return of 5.2% per property over the next year, equivalent to £8.522 per property.

In April, 8.9% of all rent was late or unpaid at the end of the month, down from 9.9% in March. The arrears outlook improved again in May, with the total unpaid rent amounting to £275 million, down from £306 million in April. However, with households under continuing financial pressure, it is crucial that landlords are not caught out by the deteriorating state of tenant finances.

Also relating to tenant finances, the findings of an evaluation of compulsory tenancy deposit protection five years after it became law in England and Wales have been released. The evaluation was written by Steve Harriot, the chief executive of the Tenancy Deposit Scheme (TDS). It highlights the difference in awards made by the three schemes following dispute resolution.

From March 2011 to March 2012 there were 20,279 disputes, opened pretty much evenly between landlords or their letting agents and the tenants. Despite all three schemes operating under very similar adjudication processes, there are marked differences between the proportions awarded.

The findings show that a landlord is most likely to be awarded 100% of the deposit with TDS. The landlord is less likely with the Deposit Protection Service (DPS), but is very unlikely to be successful with MyDeposits.

If a tenant were to insist on their landlord going with MyDeposits and a dispute arises, the tenants has a 50% chance of winning back 100% of their deposit.

In all three schemes the tenant is more likely awarded 100% of the deposit than the landlord, although the majority of disputes are resolved with the awards being split.

With TDS, tenants are awarded the full deposit in 22.84% of cases. Landlords got the full deposit in 19.22% of cases. 57.94% of disputes ended in a split award.

With the DPS, tenants are awarded the full deposit in 41.5% of cases. Landlords got the full deposit in 19.1% of cases. 39.4% of disputes ended in a split award.

With MyDeposits, tenants are awarded the full deposit in 48.48% of cases. Landlords got the full deposit in 7.81% of cases. 43.7% of disputes ended in a split award.

TDS and MyDeposits, the two insurance-backed schemes, spun off from the National Landlords Association, are due to re-tender for five-year contracts next month.

We have stressed the importance of good communication between tenant and landlord in the past, and now it has been shown that we were right to do so!

Total Landlord has conducted a study has found that 21% of tenants have bad levels of communication with their landlord. A quarter of tenants reported that landlords took five or more days to respond to problems brought to their attention, with another quarter saying that their landlord had failed altogether to fix urgent problems. One-tenth of tenants have no formal tenancy agreement or contract in place.

But the coin, as ever, has two sides. 40% of landlords claimed to have troublesome tenants, while two-thirds of landlords claimed that they have had tenants default or not pay on time. 80% have lost money due to unpaid rent over the years. A third of landlords say they are unaware of their legal obligations.

Eddie Hooker, CEO of Total Landlord Insurance, said, “Landlords need to put in place standard operating procedures so that each party know where they stand when issues arise. It was also staggering to learn that more than half of landlords do not even have rent guarantee insurance on their properties.”


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