The cost of renting in London is rising at nearly twice the pace of the UK, reaching more than double the average for the rest of the country for the first time.
New figures released today by Homelet indicate that the rents on new tenancies in London are rising much more rapidly than official figures suggest. The index shows rents up by an eye-watering 11.2 per cent in the year to May.
Across the UK on average, rents only rose by 6.3 per cent over the same period, and excluding London the average property’s monthly rent is £694, less than half of London’s £1,412.
According to Homelet, in the north east of England and Scotland rents actually fell by 2.3 and 3.8 per cent respectively during the same period.
Rents increased in every part of England, but in the east midlands, Yorkshire and the north west, the increase was less than three per cent.
“As a rule of thumb, for a rental property to be affordable, a tenant’s gross income must be at least two and a half times his or her annual rent. Our data shows that rents in London have pushed beyond that boundary, with the south east and south west of England close behind,” said Martin Totty of the Barbon Insurance group, Homelet’s parent company.
Despite the fact that salaries are higher in the capital, the average tenant income is only 2.23 times the average rent in London, and the multiple is much higher in other parts of the country – over three per cent in eight of the UK’s 11 regions.
Recent data from buy-to-let specialists BM Solutions suggested that rental yields are falling for investors in London property, especially in the very centre of the city. The drop suggests that either house prices are due for a downwards correction, or that rents will increase further.
HOW QUICKLY ARE RENTS RISING?
Homelet’s rental index suggests rents have climbed by 6.3 per cent in the 12 months to June – and at an even faster pace in London, with a surge of 11.2 per cent.
This increase in prices is extremely fast when compared to official figures, which try to take a view of the whole market for private tenancies, rather than new tenancies, as Homelet does.
As a result of this methodological difference, the Office for National Statistics (ONS) shows rents rising by just 1.4 per cent in London in the year to March, below the general level of consumer price inflation.
The official statistical body does not publish figures on the average rent, and only monitors the percentage change from month to month, and notes that the rental index is experimental.
Homelet’s estimate of rents is more easily compared to the house price index drawn up by the ONS, which is based on the most recent transactions and varies much more than the rental index.
The company takes data from around 350,000 prospective tenants during a year, and brings together the agreed rents to construct its index.