Private sector rents have risen for six consecutive months and jumped 4.2 per cent nationally in a year to an average £705 monthly.
But the latest buy-to-let index from LSL Property Services, which owns the UK’s largest lettings agent network including Your Move and Reeds Rains, says many landlords are seeing the capital value of their homes fall, as rental income rises.
And older generation homeowners could be helping to drive surging rents.
According to a survey by HomeLet Rental, in increasing number are cashing in the equity in their homes and moving to rented accommodation to avoid falling victim to the economic crisis.
The firm, which specialises in retirement and semi-retirement lettings, said 1,074 people aged 55 and over sold their homes and moved into rented property in the past year – a small figure in the global picture but a marked increase over previous years.
Chairman Peter Girling said: “Elderly people in Britain have £3trillion tied up in property and many need this money to fund their living.
“Selling up in later life and renting is the ultimate in equity release. With inflation at five per cent, shares in free fall and low interest rates slashing the value of savings, older people need to access capital tied up in property.”
He suggested there was scope for further growth in the sector private landlords would offer lifetime tenancies, giving renters greater security than the more common six-month or one-year short-term leases.
He said private landlords should change their approach, to “accommodate the needs of older renters and to attract others”.
With older generation renters at one end of the market and younger people at the other looking for their first home away from their parents but unable to afford the deposit on a bought home, demand for rented property is rising.
In July alone, the average private sector rent in England and Wales rose 0.6 per cent. The average rent is now £29 per month higher than in July 2010.
Not surprisingly, London saw the greatest annual rent increase in England and Wales – hitting a new high of £1,009 a month in July, a rise of 7.1 per cent.
Outside London, the biggest rises were in the North East (5.5 per cent), followed by East and West Midlands (4.8 per cent).
On a monthly basis, rents increased fastest in the South East, where they rose 1.7 per cent. In Wales and the East Midlands, they increased by 1.4 per cent compared to June.
David Newnes, estate agency managing director of LSL Property Services, predicted rents would continue to rise.
“Demand from thousands of frustrated buyers each month is underpinning buoyant competition for rental homes, enabling landlords to increase prices.
“The market will continue to heat up. Such strong demand and high rental incomes has forced lenders to take notice, and more are returning to the sector.
“As a result of competition in the buy-to-let market, the range of affordable products is expanding – and lending to investors rose by 21 per cent in the past quarter. Nevertheless, even with the squeeze on landlord finance abating, the new supply will not be enough to meet demand from tenants.”
Mr Newnes says the ‘bank of mum and dad’, which helps many young people to get a mortgage, is coming to the rescue of tenants too.
“As rents climbs, so does the size of the average deposit a new renter must find. Thousands of new buyers each year rely on the bank of mum and dad to help fund a deposit.”
The average landlord who collected rent of £7,522 in the past year saw a drop in capital value of the property of £5,462 – leaving an overall profit of £2,060.
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 – equivalent to £4,093 per property.
He added: “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 look increasingly attractive.”