Rents fell in December but expected to climb again

IveSeenTheLight

from http://www.moneysavingexpert.com/news/mortgages/2011/01/rents-fell-in-december-but-expected-to-climb-again?utm_source=forum&utm_medium=sidebar&utm_campaign=box

The cost of being a tenant fell for the first time in nearly a year in December but rents are expected to resume their upward march during 2011.
The average rent fell by 1.2% during the month, dropping to £684 from the record high it reached in November, according to lettings agent network LSL Property Services.
The group says the fall, the first one since January last year, was driven by the fact that December is traditionally a slow month for the rental market, as well as the severe winter weather seen in the month.
It believes many landlords with vacant properties in December cut rents to avoid having a long void period during the festive season.
A landlord who slashed the average UK rent by 5% to get a tenant in December would actually save £275 over a year, compared with leaving the property vacant for one month.
But LSL expects rents, which are still 3.8% higher than a year ago, to begin rising again in the coming months, as the mismatch between supply and demand reasserts itself.
David Newnes, from LSL property services, says: "December is traditionally a slower month for the rental market.
"Many prospective tenants are either away from home, or prioritise Christmas spending over budgeting to move. This year, the added Arctic weather temporarily dampened demand, deterring many renters from hitting the streets and viewing properties.
"Nevertheless, with the supply of mortgage finance to both first-time buyers and would-be landlords still constrained, we are likely to see rents restart their upwards march before the spring."
Regional variations
Wales saw the steepest fall in rents in December, with the cost of being a tenant dropping by 2.6%, while rents in the South East and London fell by 2.5% and 2.3%, respectively.
But not all areas of the country saw drops, with rents rising by 2.2% in the West Midlands and 1.7% in the South West, with smaller increases also recorded in the East Midlands and the North East.

Graham_Devon

The other side to rising rents, which isn't reported in that article, is this...

Landlords suffered another setback last month as UK rent arrears increased to 11.7% (£276m) in December compared to 9.7% in November.


David Newnes, managing director of LSL property services, which owns Your Move and Reeds Rains, said the December surge was a seasonal phenomenon, with tenants feeling the pinch over Chirstmas. But he added: "Tenants have been under steady pressure in recent months. Arrears have been rising since October as public sector spending cuts start to bite in many areas of the country. With unemployment set to increase this year, and rents likely to rise once more in the spring, more tenants will be at risk of falling behind with rent payments."

LSL said landlords' total annual returns dropped to 7% in December – the lowest level since November 2009 – following house price falls in the past three months. If prices continue to decline at the same rate of the last quarter, an investor entering the market now could expect to make an annual return of £3,259 per property – equivalent to £8,211 in rent and capital losses of £4,953.

I really can't see why landlords see it as such good news that rental prices are increasing in an unsustainable way.

It's a short term gain, just about outweighing the valuation falling on the asset. But the problem is, that short term gain is unsustainable, and everyone can see that, surely?

Generali

Graham_Devon wrote: »

The other side to rising rents, which isn't reported in that article, is this...

I really can't see why landlords see it as such good news that rental prices are increasing in an unsustainable way.

Rental prices aren't rising unsustainably. Rents are rising by less than inflation, ie rents are falling compared to prices in the economy generally, probably because VAT isn't applied to them.

Graham_Devon

Generali wrote: »

Rental prices aren't rising unsustainably. Rents are rising by less than inflation, ie rents are falling compared to prices in the economy generally, probably because VAT isn't applied to them.

So if inflation was 17%, so long as rents only rose 10% for instance, that would be sustainable?

I don't see how anyone can call it sustainable, when rents have been going up, and the reported arrears figures at the same time....go up.

How is that sustainable when arrears keep rising?

Wage inflation and inflation in general are two different things....and im surprised to see you describe arrears rising on the back of rising rental prices, as sustainable as they are below general inflation.

IveSeenTheLight

Graham_Devon wrote: »

So if inflation was 17%, so long as rents only rose 10% for instance, that would be sustainable?

I don't see how anyone can call it sustainable, when rents have been going up, and the reported arrears figures at the same time....go up.

How is that sustainable when arrears keep rising?

Wage inflation and inflation in general are two different things....and im surprised to see you describe arrears rising on the back of rising rental prices, as sustainable as they are below general inflation.

You need to consider the arrears in relation to the income.
If arrears were £10 and the income was £100 and they both increased 10%, arrears may be rising but small fry in relation to the revenue increase.

Procrastinator333

THE_GHOULS_ARE_FOOLS wrote: »

Great news. I might book another carribean holiday to celebrate.

Please do.

IveSeenTheLight

Generali wrote: »

Rental prices aren't rising unsustainably. Rents are rising by less than inflation, ie rents are falling compared to prices in the economy generally, probably because VAT isn't applied to them.

Is there a database of average rents we could review?

Graham_Devon

IveSeenTheLight wrote: »

Is there a database of average rents we could review?

Ooo! Yes! That would be exciting!

IveSeenTheLight

Graham_Devon wrote: »

Ooo! Yes! That would be exciting!

As always Graham, it's mich better to understand the broader picture instead of thrapping over one months figures.

Still you must be happy with just that singular month if it suits your needs

IveSeenTheLight

I did find this link
http://www.rentright.co.uk/00_00_00_00_00_rrpi.aspx
however I'm not so convinces of the accuracy and the methodology may be suspect

Generali

IveSeenTheLight wrote: »

Is there a database of average rents we could review?

Yeah, it's in the RPI data on the NSO website.

http://www.statistics.gov.uk/statbase/TSDdownload2.asp

The link appears to be broken but just put DOBP in the search box and you'll get the data you want. This data is based on the annual household spending survey and is as good as it gets.

The base date is Jan 1987 when the index was set at 100. As of Dec 2010 the index stands at 310.3, in Dec 2009 it was 305.9 so rents have risen on average by 1.4% over the past year*.

Graham_Devon wrote: »

So if inflation was 17%, so long as rents only rose 10% for instance, that would be sustainable?

I don't see how anyone can call it sustainable, when rents have been going up, and the reported arrears figures at the same time....go up.

How is that sustainable when arrears keep rising?

Wage inflation and inflation in general are two different things....and im surprised to see you describe arrears rising on the back of rising rental prices, as sustainable as they are below general inflation.

Wages rose by 2.1% last year so rents have risen by less than wages on average, ie the average rent has become more affordable. Wage rises have been higher amongst the lowest paid than the highest. The lowest are, I would imagine, more likely to rent.

If rental arrears are rising then that is a different matter, possibly related to rising unemployment and people diverting housing benefit to paying for things other than their rent??? That's merely speculation however. The data show rents are rising, on average, more slowly than either wages or prices. Clearly from a consumer's pov that is sustainable. From a landlord's pov perhaps less so, depending on the business model of course.





*(310.3-305.9)/305.9 x 100% = 1.44%