Average rents the same as five years ago, regional rents erratic

publication date: Sep 3, 2012
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

Current Rental Market Performance:
Average rents the same as five years ago, regional rents erratic

There are three main monthly rental indices, one quarterly and several indices and research papers which measure specific markets, such as the student market and room rents, which help to explain the current rental market.

Rental Indices

* Belvoir index tracks slightly lower than other rental indices as it includes Scotland,
   unlike LSL and has a lower proportion of agents in London.

These four indices give a good indication of what's actually happening to rents now and on the surface, it does seem rents are on the rise. The Homelet index suggests that since the start of the year, rents have gone up by over 3% and a similar amount up year on year. The LSL and Belvoir index in comparison, suggest rents are actually pretty static, with LSL measuring a small increase year on year, while the Belvoir index suggests rents have been relatively static over the 12 months.

In the main both the average stats and the experience of tenants, landlords and letting agents do suggest that the rent rises being reported and feared by the media aren't as scary as initially thought - for the moment. These figures though just measure current rents versus rents this year and last - and that's where the statistics become very misleading when chatting to landlords and tenants. From a tenant and landlord perspective, it's more important to compare current rents versus previous highs and lows.

The Belvoir index is one of the few rental indices that has been monitoring rental movements since the crash in 2007. Taking the data from this index, the average rent in May 2008 was £691 per month and as it's currently £681, that's an actual drop of 1.45% over a five year period.

So the real picture of rents in the UK is not one of huge rises, it's one of "rents are recovering to the heights of 2008"- a very different reality to what the latest statistics are suggesting. From a landlord and tenant perspective, in view of the fact inflation has been running between 3% and 4% each year, the true story behind what's happening to rents is that in real terms as opposed to nominal, rents have actually fallen over the last five years.

Regional Statistics
At a regional level, changes in rents show very different pictures. In areas such as London, tenants are pushing up rents to compete for properties and can afford to do so by trading down to smaller properties (for example, a two to a one bed) or are moving further out of London and offering higher rents than can be afforded by locals.

According to LSL's May report, "rents rose annually in all but three regions, with rents falling by 1.5% in the East Midlands, 0.7% in Wales and 0.3% in the North East. Rents rose the fastest in London and the South East, where they increased by 4.2% and 3.1% respectively". The Belvoir Index picked up rises in most areas too, including East Midlands and the North East, with London rising the most. However, the index also detected small falls of half to one percent year on year in the West Midlands and Yorkshire, and month on month showed most rents static or even showing slight falls.

When looking at May's average rents versus those back in May 2008 the reality is, there are actually only a few areas, according to Belvoir's index which have recovered to previous heights. Areas such as the North East, North West, East Anglia and South East have yet to recover to 2008 levels, while the East Midlands and the South West are almost recovering. Areas which are performing well and in some cases surpassing 2008 levels are London, Yorkshire and the West Midlands.

In summary, the rent rises being reported by the indices are giving landlords and tenants a false impression of what's actually happening with rents.

The reality is any rent rises being picked up month on month or year on year are actually rents recovering to previous 2008 heights. In the main, tenants can rest easy; rents in 2012 are pretty flat!

What's happening to room rents?
Increasingly, landlords are turning to renting out rooms rather than whole homes to help improve their monthly rental income and average returns. The only problem is that the more landlords' cotton onto renting out rooms rather than whole properties, the supply goes up pretty quickly - potentially dampening overnight what a room can be rented out for.

The cost of room rents in many areas isn't always accounted for by landlords either. The ‘gross yield' figures can look fantastic, 10 to 15% in some areas. The difference is though it costs a lot more to run a home in multiple occupation (HMO), particularly if it's a licenced HMO. This can even attract costs up to £500 or more which have to be paid in the form of a licence to the local authority.

According to Spareroom.co.uk "Last month rents fell in 26 UK post towns, stayed the same in 29 and rose in 64. The biggest rises were in Edinburgh (9.9%), East Central London (8.33%) and Durham (6.02%). Rents in East London, home to the 2012 Olympics, rose a modest 2.17%."
Versus last year, Easyroommate.co.uk data suggests rents are down year on year, with Nottingham renting at around £87 last June and achieving just £70 in 2012 (19% fall); London renting at £135 per week in June 2011 (6% fall), but falling to £127 this year while Glasgow fell from £101 per week to just £91 (10% fall).


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