Rents remain steady as increase in first time buyers

An increase in first time buyers leaving the rental market saw rents remain steady in June.

The average rent in England and Wales remained the same as in May, at £737 per month. This comes after monthly rental inflation has been slowing for a number of months and compares to an average 0.8% monthly increase in June over the five years since 2008.

The continued slowdown leaves rents only 2.6% higher than in the same month last year - below the rate of CPI inflation (2.9%).

David Brown, commercial director of LSL Property Services, said: “The proportion of households in the private rented sector is still growing strongly a trend that’s set to continue for the foreseeable future.

“Yet with better access to finance in the first half of this year the immediate picture has become far brighter for tens of thousands of first-time buyers.

“And now these green shoots are starting to bear fruit for those still renting too as milder competition for tenancies has kept a lid on the cost of renting.”

The number of new tenants in June also indicated a slightly cooler rental market. Across England and Wales there were 0.8% fewer new tenancies in June than in May.

However activity has still seen strong annual growth. The number of new lettings in June increased by 3.5% compared to the same month in 2012.

Regional variation remains. Five out of 10 regions saw rents rise in June. The sharpest monthly increase was in the East Midlands where rents have risen 0.7% since May.

Second fastest were the North West and South West with average rents in both regions seeing a 0.5% monthly rise.

The quickest monthly falls were in Wales where average rents are down 1.9%. Rents in Yorkshire and the Humber fell by 0.6% since May while the West Midlands saw average rents drop by 0.5%.

Meanwhile, rents in the South East have fallen by 0.4% between May and June, representing a sharp decline from only the previous month.

By comparison, between April and May the average monthly rent in the South East had grown by 0.2%.

On an annual basis rents in seven out of 10 regions remained higher than in June 2012. London remained the region with the fastest annual rent rises up 6.4% from a year ago.

But June’s figure is much slower than the recent peak of 7.9% rental inflation registered in the capital in March.

Relentless price growth in London as supply contracts

The extent of the growing housing crisis in the UK is often debated amongst political parties and in the media. Whilst the situation is being felt across the country, the crisis is most prevalent within the 32 boroughs of Greater London that are now home to almost eight million people and counting. 

The relentless demand to live and work in the region is one factor but this is compounded by the severe shortage of property being built and fewer numbers of existing stock being placed on the market.

In the first six months of 2013, almost 65,500 homes were put on the sales market. This may sound like a considerable number but, just three years ago, the volume of property on the London market in the first six months of 2010 was close to 87,400 properties. 

Since then, seasonal peaks and troughs aside, the flow of new property to the sales market has been in gradual free fall and, by June 2013, supply has contracted by 40% over three years to just shy of 10,500 homes. Looking back further, over the last six years, supply has contracted by a staggering 67% in the Greater London area.

Economic uncertainty, lending restrictions, low new build completion rates and overseas buyers have all played their part in restricting stock in recent years. However, the current situation is merely a function of investors’ quest for both yield and security. The average monthly rent for a London home now stands at over £2,400. If one couples that with a monthly rise in the underlying value of the property by around 10% per annum, then the investor is presented with a highly attractive proposition.

Doug Shephard, director at Home.co.uk, commented:

"Home price rises in and around London seem to be relentless. Affordability issues for equity holders, let alone first-time buyers, are growing and hinder attempts to move. Consequently, the capital finds itself in a bizarre situation: market prices are showing signs of overheating but, despite this, they are being further inflated by the severe drought in property stock – the characteristics of a classic investment bubble.

Given the market conditions, it is no surprise that London homeowners are increasingly looking to let their existing home and then rent an alternative property, often outside of the region. This so-called 'double renting' can obviously help homeowners access a different lifestyle yet it places even more pressure on the stock of properties for sale.

As the number of new builds under construction in the capital continues to fall behind government targets with no major turnaround in sight, the emphasis must be on creating the right economic and market conditions that give potential vendors enough incentive to return to the London market in significant volumes. Economic theory suggests that incentive to divest will only come from either better performing investments aside from London property or, much worse, a bust."