Tenant rents in London break £1,000 a month, LSL

Tenant rents in England and Wales have risen for six consecutive months, up 0.6 per cent to £705 a month in July, with annual rent inflation at 4.2 per cent, data from LSL Property Services' Buy-to-Let index has shown.

London saw the greatest annual rent increases in England and Wales, hitting a new high of £1,009pcm, an annual increase of 7.1 per cent. The next biggest rises were in the north east where rents rose 5.5 per cent and the East and West Midlands where rents increased by 4.8 per cent. In the last year, average rents have risen in all regions except Wales, where they are now at the same level as July 2010.

David Brown, commercial director at LSL Property Services, warned that it was "unlikely" that tenants will gain respite any time soon as this is the "peak season".

He said: "Demand from thousands of frustrated buyers each month is underpinning buoyant competition for rental homes, enabling landlords to increase prices.

"Such strong demand and high rental incomes has forced lenders to take notice, and more are returning to the sector."

He added that the increasing cost of rental accommodation alongside rising living costs has eroded first-time buyers' ability to save deposits.

The total annual return on a rental property fell to 1.2 per cent in July as annual declines in rental property prices took their toll. LSL claimed that if property values continue on their current trend, a property investor could expect to make a total annual return of 2.5 per cent over the next 12 months.

Mr Brown said: "Falling property prices are holding back total annual returns and will continue to do so over the short-term. But the vast majority of prospective investors look at longer-term fundamentals such as tenant demand and yields – and these are looking increasingly attractive."

Richard Sexton, business development director of E.surv, agreed that the rental market was soaring because potential first-time-buyers can't get mortgages.

He said: "Banks and building societies are focusing on wealthier buyers who have large deposits. They aren’t interested in lending to first time buyers who typically have much smaller deposits.

"Less than one in ten of all house purchase approvals are with a loan to value of 85 per cent or over now - back in August 2008, it was more than one in five.

"And first time buyers who do manage to get a mortgage now need a 33 per cent deposit on average. Five years ago, it was 24 per cent. The result is all those potential first time buyers have little choice but to fight it out for the rental accommodation."