In the first half of 2014 rents grew faster than the same period in 2013, according to the Countrywide Quarterly Lettings Index.
The research shows that pent up demand in the sales market has now been released following a year in which mortgage lending to first-time buyers increased by 50%. The introduction of the Help to Buy scheme has also had an impact on rents, as more tenants move out of the rented sector and purchase their own home.
Average monthly rents increased 4.6% over the past 12 months, growing at approximately twice the rate of 2013. Unlike 2013, when rents grew most quickly across parts of Northern England, it has been Outer London and the East of England where rental growth has been fastest. Rents in London continue to be driven by the Capital's booming population which government figures show increased by 108,000 to 8.4million in 2013.
While rental growth has been outpaced by house price inflation across much of southern England, the low interest rates offered by savings accounts continue to make the total returns associated with buy-to-let investment attractive against other investment vehicles.
The rental market is highly seasonal, with rents traditionally growing most quickly over the summer months as contracts are renewed, tenants begin searching for new properties and students look for next years' accommodation.
The increase in mortgage lending to first-time buyers over the past 12 months, coupled with the average age of a homebuyer using the Help to Buy scheme being just 29, has led to a fall in the number of younger tenants signing contracts. Younger tenants increasingly sign shorter contracts because they enjoy the flexibility and ability to move at short notice. So far in 2014, tenants aged 30 and under have accounted for 42% of new tenancies signed, down from 52% 12 months ago.
Conversely, those aged 40 and above now form 30% of tenancies, up from 25% a year ago. However, this change is likely to be short term with those keenest to use the Help to Buy scheme having already done so, and the fundamental lack of new housing supply means that the barriers to homeownership continue to grow.
Nick Dunning, group commercial director of Countrywide plc, said: "The recovery in mortgage availability, the Help to Buy scheme and improving sentiment in the housing market has seen a wave of tenants move into homeownership. This flow of tenants out of the sector saw demand for rental properties in many areas ease, resulting in below inflation rental growth in some areas in 2013. With changing conditions in the sales market meaning that many of those tenants looking and able to buy have already made their move, rental growth looks set to accelerate."
"Over the medium to longer term a lack of supply will increasingly put landlords in a stronger position to ask for, and achieve, higher rents. Significant upward pressure on rents will come from a lack of housebuilding, particularly in London, the South East and other major conurbations experiencing population growth. Equally, any move by the Bank of England to raise interest rates will serve to push up mortgage costs, making it harder for those with smaller deposits, in particular, to get on the housing ladder. The single best way to alleviate upward pressure on rents is to build more affordable new homes, both for rental and for sale."