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Landlord returns rise despite dip in rents

Landlord returns rise despite dip in rents

Category: Buy To Let

Updated: 16/12/2011
First Published: 16/12/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Landlords saw their returns rise in November despite the traditional seasonal slowdown causing rents to drop for the first time in ten months.

According to the latest data from LSL Property Services, the average rent in England and Wales fell by 0.4% to £717 per month last month.

Yet despite the monthly decline, rents still remain some 3.5% higher than a year ago, equivalent to £25.

At the same time, expectations are that prices will continue to rise in the New Year, mainly due to the shortage of properties to rent.

"Following their relentless march upward throughout the year, rent rises have taken a pause for breath," said David Brown, commercial director of LSL Property Services.

"Landlords are looking to avoid having properties vacant over the Christmas period, and can be less aggressive with pricing as tenant activity slows in the run up to the New Year.

"But across the country, the limited supply of rental accommodation means there will still be strong upward pressure on rents in the early part of 2012."

At the same time that rents slipped lower, however, landlords saw their total annual returns climb higher in November.

The average total annual return per property last month was 2.2%, compared to 1.4% in October, thanks to a slowdown in the annual decline in property prices, and the fact that rental incomes remained higher than a year ago.

In cash terms, the total annual return per property equates to an average of £3,726, equivalent to £7,700 in rent with a capital loss of £3,974.

The average yield remained steady at 5.3%.

"Total annual returns might be reined in by falling house prices in the past three months, but it is currently yields rather than capital gains that are attracting investors to the sector," explained David Brown.

"It is rental income that pays a landlord's mortgage, and while capital gains are important over the long run, the strength of demand and rents underpin sensible investment decisions.

"With property prices weakening, and rental income strengthening, long-term investors are exploiting cheap interest rates to pick-up bargain properties that will provide a strong yield."

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