There has been a lull in the rental boom witnessed over the summer, according to the latest Buy to Let Index from LSL Property Services.
The firm, which owns the UK’s largest lettings agent network, including national chains Your Move, Halifax, and Reeds Rains, found that while house prices in November chalked up their seventh successive monthly gain, lifting home values 5% from their April 2009 low, rents slipped back for a second month running, falling 0.6% in November to take average rents back to levels at the end of August.
This follows four months of rapid rental inflation during the summer when rents rose at an annual pace of 13%.
Rents fell fastest in the south east, down 3.3% in the month. Half of the country’s regions saw declines, with only the midlands and east of England seeing increases in November.
With house prices having risen at twice the pace of rents over the last seven months, landlords saw yields slip to 4.9% in November, a level last seen in November 2008. Adjusted for void periods (when a rented property lies vacant between tenancies) yields were 0.3% lower.
Nevertheless, as the worst of the house price falls in 2008 drop out of the figures, annual returns continue to improve. Investors buying property a year ago have made a total return of 4.1%, a combination of a small loss of 0.4% on lower house prices, and rental income adjusted for average void periods. This is the best annual total return on LSL’s record (which begins with property purchased in June 2007) and now far exceeds that available on regular deposit accounts for the first time since the credit crunch began.
In November, a typical rental property made £809 in capital gains and earned £665 in rental income, a total of £1,474.
David Brown, commercial director of LSL Property Services said: “Property bought a year ago and rented out is now making good returns for investors. Those who bought at the April low point are doing even better. Landlords are making impressive capital gains as each month goes by.