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by administrator @, Monday, September 26, 2011, 19:26

Rents recorded their largest monthly increase in a year in August, according to the latest Buy-to-Let Index from LSL Property Services plc.

In August, the average rent in England and Wales rose by 1.2 per cent to £713 per month, surpassing the previous record high of £705 in July. This is the largest monthly increase since August 2010.

With annual inflation at 4 per cent, the average rent is £27 pcm higher than August 2010. The average yield was 5.2 per cent in August.

On a monthly basis, rents increased fastest in Wales and the South East, where they rose by 2.1 per cent. The next biggest increases were in London and the South West, where they rose by 1.5 per cent and 1.3 per cent respectively. Rents only declined in the Midlands compared to July, falling by 0.4 per cent in both the West Midlands and the East Midlands.

In the last year, London has seen stronger rental inflation than other regions of England and Wales, with rents hitting a new record high of £1,025 per month in August. This is an annual growth of 6.6 per cent - equivalent to £63 per month. The next biggest annual increases were in the West Midlands, where they rose 6 per cent and the North East, where they increased by 4.3 per cent. In the last year, average rents have risen in all regions except Yorkshire and the Humber, where they have fallen by 0.5 per cent.

David Brown, commercial director of LSL, said: "We are in the thick of the busiest time of year for the rental market, and red-hot demand for properties is driving rents up at their fastest monthly pace in the last 12 months. Recent graduates moving for their first jobs have further exaggerated the long-term and growing demand from frustrated buyers.

"In the last two years, average rents have risen by more than £50 a month. With significant improvement in the number of buyers able to secure a mortgage unlikely in the foreseeable future, competition for rental accommodation will not drop and further rent rises remain on the cards."

The total annual returns on a rental property improved in August after annual decreases in property prices slowed. The average total annual return in August was 2.6 per cent, the equivalent of £4,336 - £7,626 in rent, with a capital loss of £3,290. If property values maintain the same trend as the last three months, a property investor could expect to make a total annual return of 10.5 per cent over the next 12 months - equivalent to £17,381 per property.

However, tenant arrears increased for the first time since April, with 10.7 per cent of all UK rent unpaid or late by the end of August - up from the 9 per cent of rent unpaid or late in July. Unpaid rent totalled £300m across the UK in August, up 19.5 per cent from the £251m unpaid in the previous month. But an August rise in arrears is a seasonal phenomenon. Last year, arrears rose from 9.2 per cent in July to 11.3 per cent in August 2010.

Mr Brown concluded: "The holiday season often takes its toll on tenant arrears, with many households squeezed by summer holiday spending. While we expect arrears to fall back into line in the short-term, the growth is indicative of the mounting pressure facing tenants.

"With rents rising so quickly, soaring inflation and an uncertain economic outlook, over the long-term we anticipate that rental arrears will become a growing financial problem for landlords."

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