Older generation rents for life as under 25’s stay at home for longer

Key points:

• 6% year-on-year growth in the number of tenants aged over 50
• 7% year-on-year decline in the number of tenants aged under 25
• Average length of tenancy increases to 19 months
• Average rents rise 1.2% year-on-year, with Scotland seeing the greatest increase

Older generation: Analysis from Countrywide plc, the UK’s largest lettings agency, shows a growth in the number of tenants aged over 50 living in private rented accommodation in Q2 2013. Most regions saw a rise in the number of over 50’s renting properties with East of England and East Midlands recording the greatest increase at 3% year-on-year, followed by Wales and London up 2%.

Younger generation: The under 25 age group saw an unexpected 7% decrease in the number of tenants renting properties through Countrywide in Q2 2013 compared to 2012. Weak wage growth and the rising cost of living is likely to be behind the younger generation moving back into the family home after university to save for a deposit to buy their first property. The significant decline in tenants aged under 25 is greatest in Wales where there has been an 8% decrease, followed by the South West and East of England (-3%) and South East (-2%).

Length of tenancy: The average length of tenancy is now 19 months in the UK, a slight increase on 2012.  Central London has the highest length of tenancy at 22 months and Wales the lowest at 14 months. . 

Table A:  Mix of age profiles of tenants renting in England, Scotland and Wales

Region	June Year-to-Date	Under25	25 to 30	31 to 40	41 to 50	Over 50
Greater London	2012	10%	31%	41%	11%	6%
	2013	9%	30%	36%	17%	8%
Central London	2012	18%	18%	44%	12%	8%
	2013	17%	23%	34%	17%	10%
East of England	2012	18%	26%	26%	18%	12%
	2013	15%	24%	28%	17%	15%
South East	2012	16%	24%	27%	18%	14%
	2013	14%	24%	31%	18%	13%
South West	2012	20%	26%	25%	14%	15%
	2013	17%	24%	25%	16%	18%
East Midlands	2012	21%	28%	26%	14%	10%
	2013	21%	28%	21%	17%	13%
West Midlands	2012	23%	30%	25%	13%	9%
	2013	22%	32%	24%	13%	9%
Wales	2012	23%	24%	25%	15%	14%
	2013	15%	31%	25%	13%	16%
North East	2012	19%	25%	31%	14%	11%
	2013	17%	28%	26%	17%	12%
North West	2012	21%	27%	25%	15%	12%
	2013	21%	27%	25%	15%	11%
Yorkshire	2012	24%	29%	21%	13%	13%
	2013	24%	31%	25%	11%	10%
Scotland	2012	20%	27%	27%	14%	12%
	2013	20%	27%	28%	14%	11%
Mix grand total	2012	19%	27%	27%	15%	12%
	2013	18%	27%	26%	16%	13%
Underlying year-on-year decline / growth in mix		-7%	1%	-1%	5%	6%

Average rents and yields by region: The Countrywide Quarterly Lettings Index also showed that the average monthly rent increased 1.1% year-on-year in Q2 2013 to £845pcm. Scotland saw a 6.7% rise in average monthly rents in Q2 2013 compared to Q1 2013, the greatest increase of any region. Yields remain strong across England, Scotland and Wales with Wales seeing the highest yield at 6.6%, followed by Midlands (6.5%) and North (6.4%). Arrears fell on average by 0.8% year-on-year but increased in Scotland 2.4% and Wales 2%.

Table B: Variations in rents, yields and arrears data in England, Scotland and Wales

Region	Average  Rent Q2 2013	Average Rent Q1 2013	Average Rent Q2 2012	Yield %	Arrears 30 days (% rent roll £)
Greater London	£1,110	£1,107	£1,096	6.20%	7.10%
Central London	£2,398	£2,387	£2,486	4.80%	7.30%
East of England	£821	£814	£788	6.20%	6.90%
South East	£1,058	£1,054	£1,079	5.90%	5.10%
South West	£739	£745	£737	5.70%	4.50%
Midlands	£640	£636	£627	6.50%	6.10%
North	£624	£603	£599	6.40%	6.40%
Scotland	£619	£580	£594	5.80%	6.90%
Wales	£623	£618	£624	6.60%	9.10%
Total	£845	£835	£836	6.10%	6.30%

Commenting on the Index, Nick Dunning, Group Commercial Director at Countrywide plc, said:

“Renting a property was previously a choice for the younger generation as they saved for a few years to get on the housing ladder.  However, there is currently a demographic change in the UK rental market with people renting for longer and in some cases for life. Reasons vary and for some it is because they cannot afford to save a deposit to buy their own home but others choose to rent and enjoy the flexibility it gives them especially in terms of job mobility. Tenants aged 41 and over now equate to nearly a third (29%) of all of those renting a property through Countrywide in England, Scotland and Wales and this figure is likely to rise in the future.”

“Renting is a flexible and relatively hassle-free way of living which suits many people's lifestyles. It allows them to settle in a location where perhaps they couldn’t afford to buy but they enjoy living in.  However, with a growing population of lifetime renters and more 18-25 years olds having to live with their parents for longer because they cannot afford to rent or buy, increasing the amount of good quality, affordable rental accommodation is needed to meet this demand. With banks making it easier for landlords to offer longer tenancies, more competitive buy-to-let mortgage products available and demand for rental accommodation outstripping supply, now is an ideal time for landlords to expand their portfolios and provide a more diverse range of affordable rental properties. ”   

-Ends-

GROWING MINORITY SEVERELY BEHIND ON RENT

• Number of tenants more than two months behind on rent reaches 98,000
• Cases of severe arrears up 3.3% on a quarterly basis
• Despite wider falls in rental arrears, numbers more than two months behind approach recent records
• Strained tenant finances are reflected in evictions, as court orders rise by 5% in Q1

The number of tenants in severe rental arrears has defied wider improvements in tenant finance, according to the latest Tenant Arrears Tracker by LSL Property Services plc, owners of Templeton LPA, the specialist practice of LPA Receivers.

In Q2 2013, the number of tenants in severe arrears – those more than two months behind on their rent – rose by 3.3% on a quarterly basis.  This is despite wider progress in the financial position of other tenants.

In absolute terms, the number of tenants in severe arrears rose by 3,000 to 98,000 in the second quarter. This brings the figure to the third highest level on record, with only the second and third quarters of 2012 seeing any worse.

While still a small minority, the proportion of such tenants has also continued to increase. Those in serious arrears now represent 2.4% of all tenancies in England and Wales, up from 2.3% in the previous quarter.

On an annual basis, the number of tenants in severe arrears has shown a slight improvement, falling in absolute terms by 2.9%. However this leaves severe arrears over the last twelve months 20% above the long-term average.

While severe arrears cases have worsened, there was a wider improvement in tenant finance. According to LSL’s latest Buy-to-Let Index, overall tenant arrears fell in May, with 8.2% of all rent late or unpaid . This compares with 8.4% in the previous month.

Paul Jardine, director and receiver at Templeton LPA, comments: “Tenants as a whole have already shown great resilience to set-backs, and we expect the proportion of all rent in arrears to halve between 2008 and 2018.  But a troubled minority is feeling the pinch most sharply.  Slower rent rises in the last couple of months have provided some relief.  However, the longer-term battle is with other forms of inflation, plus unemployment and anemic wage growth.  Consumer inflation is persistently outpacing the Bank of England’s target, and escalating much faster than either rents or wages.

“If 2013 isn’t another false economic dawn then the financial position of these struggling tenants could start to improve later in the year.  But tenants in severe arrears will be among those squinting the hardest to glimpse the light at the end of the tunnel.  Whether the recession included a single, double or triple dip makes very little difference – there are a growing block of tenants who can’t keep their heads above the rising tide of inflation and weak wage growth.  Until the rising cost of living begins to subside, the number of tenants in severe arrears is likely to mushroom even further.”

Reflecting a growing minority of tenants experiencing serious financial strain, the number facing eviction through court order has also grown.   In the first quarter of 2013, 28,473 tenants faced eviction notices, a quarterly rise of 4.9%. This puts evictions at the highest level ever recorded, beating the previous record set only in the last quarter. Evictions in Q1 were 9.4% higher than the same period last year.

Continued falls in overall tenant arrears contributed to a further improvement in landlords’ finances.  By the end of Q1 the number of buy-to-let mortgages over three months in arrears fell to 17,900, falling 9.1% from Q4 2012. On an annual basis, buy-to-let mortgages more than three months in arrears fell by almost one quarter (-24.8%).

Paul Jardine continues: “Most tenants are paying down their debts.  However, landlords are absorbing a stream of severe arrears from a minority of troubled tenants.  Given that this situation has been mounting for some time, more landlords know the process and the most constructive approach to take.  Frequent and honest communication between everyone is essential.  That matters all the time, but if any issues arise then everyone should understand all their options as early as possible.”

David Brown, commercial director of LSL Property Services, comments: “Investment in this sector is paramount, and the government’s latest billions in loan guarantees are a welcome addition.  However – the effect of these programmes will probably be minimal.  What’s more important is the improved availability of buy-to-let mortgage finance, which has reached the same proportion of mortgage lending as in 2007.  If improvements in the availability of finance can be sustained and keep growing, then landlords will be able to keep investing in new homes to let.

“In addition to better access to finance, falling void times and lower total arrears are further incentives to expand the supply of rented homes. But if landlords are unprepared, a case of severe rental arrears can undo these advantages in a stroke.  Only very rarely will tenant arrears cause landlords such problems, but the situation needs attention from tenants, landlords and their agents at every stage of the process.”

Average rent in England and Wales 3.5% higher than in May 2012

TENANT ARREARS DROP BY £6 MILLION

AS RENTS RISE MORE SLOWLY

•           Financial position of tenants improving –  as the proportion of all rent in arrears falls to 8.2%

•           Number of new tenants increases by 3.4% on a monthly basis, and 5.1% year-on-year

•           Rents rise by 0.1% between April and May, compared to recent average of 0.3% per month

•           However – the average rent in England and Wales remains 3.5% higher than in May 2012

•           Rents in London 7.2% higher than in May 2012, while South West sees no annual change

Rent rises in May were slower than recent months, according to the latest Buy-to-Let Index from LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

The average rent in England and Wales rose by 0.1% since April, to £737 per month.  This is slower than the average monthly increase of 0.3% over the previous twelve months. However, the latest increase still leaves rents up 3.5% up on an annual basis – and brings rents in May to the third highest level on record.

The number of new lettings in May benefited from better tenant finances and slower rent rises, contributing to a 3% increase in the number of new tenants, compared to April. On an annual basis, there were 5% more new tenants than in May 2012.

Six out of ten regions saw rents rise in May. The fastest increases were in the East Midlands, where rents are up 0.4%, followed by the North West with a 0.3% monthly rise.  London, the South East and the East of England all saw rents 0.2% higher than the month before. However, rents in Wales fell by 0.7%, followed by a 0.4% drop in the West Midlands, while rents in Yorkshire and the Humber are down by 0.3% compared to April.

On an annual basis, there remains significant variation in the rate of rent rises. Once again, London dominated, with rents 7.2% higher than a year ago.  Next fastest was Wales, where rents are up 5.2% since May last year, followed by the North East with annual rent rises of 4.0%.  In nine out of ten regions rents are higher than a year ago, with only the South West seeing no change since May 2012.

David Newnes, director of LSL Property Services, owners of estate agents Reeds Rains and Your Move, comments: “Despite a strong increase in new tenants, rents rose more slowly than other household costs.  But that demand would have been even stronger had it not been for a recent spurt in the number of first-time buyers.  Looking further ahead, sustaining the increase in new buyers will depend on how many tenants are able to build big enough deposits to get a mortgage.  With wage growth so weak compared to inflation and house price growth, it looks like deposits will become less affordable – which will keep demand for rented accommodation high.  The rental market has demonstrated its flexibility in May, but will need to continue to adapt to deal with the long-term change towards levels of demand unprecedented in recent decades.  May’s figures are consistent with our longer-term predictions – that private renting will become a more and more vital aspect of the economy.”

Due to slower capital accumulation, the total annual return on a rental property fell to 5.3% in May. This represents an average return of £8,747 with rental income of £7,797 and a capital gain of £950. The average yield on a rental property was unchanged on a monthly basis, at 5.3% in May, compared to 5.2% in the same month last year.

If rental property prices maintain the same trend as the last three months, the average investor in England and Wales could expect to make a total annual return of 6.2% per property over the next 12 months – equivalent to £10,316 per property. 

David Newnes comments: “With the real heat of the summer market just around the corner, a slightly cooler market in late spring is likely only to be a mild interlude.  But despite the very temporary reasons, last month will have been very welcome for tenants and landlords alike, with more lettings activity going hand-in-hand with more affordable rent rises.  A slower monthly increase has had no significant effect on landlords’ annual returns, bolstered further by the better financial position of tenants.”

The total amount of rent late or unpaid has improved by £6 million in one month. Total arrears in May were £276m, compared to £282m in April. This equates to 8.2% of all rent across England and Wales, compared to 8.4% of all rent in April.

David Newnes concludes: “Tenants are gradually paying down rental arrears – part of a broader shift where consumers are focusing on deleveraging and shedding their bad debts. It’s a clear long-term trend, despite the occasional more difficult month.  Landlords will be equally happy that tenants facing financial trouble have found an opportunity to pay down arrears.  But while this month will come as a relief for everyone, in the longer-run it’s still unemployment levels and wage growth which matter the most to the affordability of rent.  Those factors will depend on the wider economic recovery, and the latest jump in inflation will make that long term struggle all the more gradual.”