Rents up 3.4% in 2015 but yields dip as a result of capital appreciation

Rents across England and Wales rose by an average of 3.4 per cent in 2015 - the fastest annual growth rate since 2011 according to Your Move and Reeds Rains.

Last year’s increase came despite a month-on-month drop in the latest rents, falling 0.6 per cent between November and December.

This puts average rents at £794 per month, as of December 2015.

“Such growth in rents is a mixed bag. The fact that the majority of tenants can afford higher rents is certainly good news. Over the longer-term, higher rents also raise a serious challenge for the future affordability of housing in this country” says Your Move’s Adrian Gill. 

“Last year also demonstrated how the cost of renting a home has begun to diverge from the wider cost of everyday living, as measured by standard rates of inflation. Again this demonstrated that maintaining the success and the current affordability of private renting will depend on the main issue at hand – getting more properties onto the market.

In December, six out of 10 regions saw monthly falls in rents. This is led by London, with rents last month 1.6 per cent lower compared with November. The North West saw a 0.9 per cent drop, while rents in the North East fell by 0.6 per cent. 

Four regions have seen rents rise on a monthly basis in December, led by Wales at 1.8 per cent, followed the South West where rents rose by 0.9 per cent.

The gross yield on a typical rental property in England and Wales (before taking into account factors such as void periods) has dropped to 4.9 per cent in November, down from 5.0 per cent in November 2015. On an annual basis, this is fractionally lower than the 5.1 per cent gross yield seen a year ago in December 2014.

Generally seen as good news for landlords, accelerating property purchase prices are responsible for suppressing rental yields, but have also boosted landlords’ total returns. 

Taking into account both rental income and such capital growth, the average landlord in England and Wales has seen total returns of 11.3% over the course of 2015. This is up from 10.4 per cent in the 12 months to November 2015 – and the highest for a year, since standing at 11.8 per cent in December 2014.

In absolute terms this means that the average landlord in England and Wales has seen a return of £21,110 during 2015, before any deductions such as property maintenance and mortgage payments. Of this, the average capital gain contributed £12,438 while rental income made up £8,672 over the twelve months to December.